Different types of Yield Curves

The following graphs show three different types of yield curves

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Explanation of Yield Curves by Market Expectation Theory (Hypothesis) :

Normal Yield Curve:
When long term interest rates are more compared to short term interest rates, the shape of the yield curve is upward sloping.

Flat Yield Curve:
When there is no change in market outlook on interest rates then we get flat yield curve. This is because yields are almost same across tenors.

Inverted Yield Curve:
When short term interest rates are higher than long term interest rates the shape of yield curve takes downward sloping. This happens when markets expect high volatility in the near future however long term story remains same.

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Sathish Emmadi

Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.

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