Inverted Yield Curve

From Reuters Financial Glossary

A chart pattern that shows yields on short-term securities above those on long-term securities. This is a reversal of a normal yield curve, where long-term rates are higher to reflect the risk of holding securities for a longer time. An inverted yield curve may reflect fears of a glut of short-term paper, which pushes down prices and pushes up yields, or of a shortage of long-term securities, which pushes up prices and pushes down yields. It may also reflect expectations that inflation will be lower in the long term than in the short term, producing an eventual drop in yields. An inverted yield curve is also known as a negative yield curve.

See also: Yield Curve