a yield curve inversion occurs when short-term interest rates become higher than long-term interest rates for bonds of the same credit quality, such as u.s. treasury securities. this is the opposite of the normal situation, where long-term rates are typically higher than short-term rates because investors demand higher yields to compensate for the risks associated with holding longer-term investments. key points:  1. normal yield curve:   in a healthy economy, the yield curve slopes upward, reflecting higher yields for longer-term bonds compared to shorter-term bonds.  2. inverted yield curve:   when the curve inverts, it slopes downward, meaning investors are willing to accept lower yields on longer-term bonds because they anticipate economic trouble ahead.  3. why it happens:   an inversion usually reflects expectations of slower economic growth or a potential recession.   it can also occur when central banks (e.g., the federal reserve) raise short-term interest rates to combat inflation, while long-term rates fall due to decreased expectations for economic growth or inflation.  4. why it matters:   yield curve inversions have historically been a reliable predictor of recessions. for example, before many past u.s. recessions, the yield curve inverted 618 months prior.  5. key measures:   economists often monitor the difference between the 10-year treasury yield and the 2-year treasury yield (known as the 2s/10s spread) or the 10-year yield and the 3-month yield. when these spreads turn negative, it signals an inversion.
United States