what a flat yield curve means to lenders
banks tend to profit more when the long term rates they lend at are higher than the short term rates at which they borrow so their profit margins tend to tighten when the yield curve flattens given this logic a flattening yield curve could lead to lenders becoming more cautious about extending credit the threat of a forthcoming economic slowdown compounds that sense of caution 2however it s not always straightforward and the impact of a flat yield curve on banks may not be a bad signal for example many loans have variable rates tied to short term benchmarks and banks tend to pay savers a lot less to borrow funds 6