Stock Market · Currency, Commodity & GSec

The yield curve

The yield curve plots government bond yields across different maturities, from 3 months to 30 years. Its shape tells you what the bond market thinks about the future of the economy.

Normal yield curve (upward sloping)

Longer maturities → higher yields. This is the default: investors demand more return for locking up money longer. A normal curve signals economic expansion expected ahead.

Flat yield curve

All maturities have similar yields. Signals economic uncertainty. Transition state, usually precedes either normal or inverted curve.

Inverted yield curve

Short-term yields HIGHER than long-term yields (e.g., 2-year yield at 7.5%, 10-year at 7.0%).

This is abnormal and rare. It means:

• Bond market expects a RECESSION or sharp rate cuts ahead.
• Investors rush into long-term bonds (bidding up prices, lowering yields) because they expect short-term rates to fall.

> An inverted US Treasury yield curve has preceded every US recession in the last 50 years. It's one of the most reliable leading economic indicators.

India's yield curve

India's yield curve rarely inverts sharply. But watching the slope of India's 10-year vs 2-year G-Sec spread gives clues about RBI policy expectations.

When the spread WIDENS: market expects rate cuts (good for long-term bonds).

When the spread NARROWS: market expects rate hikes.

Normal curveeconomic growth expected

Inverted curverecession warning

Flattening curvegrowth slowdown anticipated

Takeaway. The yield curve (plotting bond yields vs maturity) signals economic expectations. A normal upward slope means growth. An inverted curve (short rates > long rates) is the bond market's recession warning, and historically one of the most accurate.