What an inverted yield curve means

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  1. Recently,United States and UK yield curves had inverted for the first time since 2007 and 2008 respectively.This has led to the fear of global recession in the coming future.
  2. The yield curve is a graph showing the relationship between interest rates earned on lending money for different durations.
  3. A normal yield curve is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time.
  4. However,inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields which can be a sign of an upcoming recession.
  5. Recession is a slowdown or a massive contraction in economic activities, wherein economic indicators such as GDP, profits, employment tend to fall.