Normal Yield Curve

The “logical” Yield Curve in terms of risk reward is one where Short-Term Interest Rates are less than Long-Term. This is a Normal Yield Curve, upward sloping from left to right.

The Yield Curve is a graphical representation of the term structure of Interest Rates, on the X-Axis is Maturity. The Y-Axis is Yield. The main shapes of the Yield Curve are, the Normal Yield Curve, a Flat Yield Curve and an Inverted Yield Curve. The Normal Yield slopes up from Left to Right and it is the “logical” Yield Curve in terms of risk reward. Nevertheless, in response to Economic and Interest Rate expectations, the shape of a Normal Yield Curve changes, Rotation so Steepening or Flattening towards an Inverted Yield Curve or the Yield Curve could simply move up or down. The Stock Market will react to changes in the Yield Curve. A Flattening of the Yield Curve, heading towards an Inverted Curve could signal a possible recession. While a Steeping in the Yield Curve due to higher Interest Rates is likely to have a -ve impact.