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Yields, driven by investors, may change by the second, minute, etc., across all maturities/tenors CURRENT SITUATION post 9-11: Market dynamics challenging classic economic and finance theories Are below O/N or and/or inflation rates rational? Are low or narrow spreads against know benchmarks for sovereigns and corporates warranted?
YIELD CURVE (continued) NORMAL YIELD CURVE Short-term rates or yields are less than long-term rates at any given point (iST < iLT) Associated with a economic growth/rising economy
INVERTED YIELD CURVE Short-term rates or yields are greater than long-term rates at any given point (iST > iLT) Associated with a contracting economy/recession
FLAT YIELD CURVE Rates or yields are the same throughout, or a situation where the differences between yields across all tenors
are negligible or very small (iST = iLT) A transition yield curve; i.e., change from normal to inverted yield curve and vice-versa No particular economic condition attached, but normally occurs during a rising economy