A normal yield curve indicates the economy is doing well and that people are optimistic that it will continue to do so. The market sentiment is normal, with expectation of some growth and no major risks on the horizon. An inverted yield curve indicates that confidence in the economy isn’t as strong. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. Normal yield curve typically exist when an economy is neither in a recession nor there is any major risk of overheating. The financial investing term normal yield curve refers to an upward sloping line plot used to illustrate the interest rate differences between short and long-term debt instruments. This difference is due to the time -related risk. Normal. In an inverted shaped yield curve, short-term yields are more than the long-term yields. In a normal yield curve, investors associate a higher risk with long term bonds, which results in higher yields for them. Inverted. When graphed, the normal yield curve is an upward sloping asymptote. A normal yield curve, also known as a positive yield curve, is a visual tool that shows the direct relationship between the interest rate and time to maturity of an investment. A normal yield curve has an increasing pattern, i.e. the graph climbs up as it moves towards the right (higher terms). The yellow curve in the chart above which corresponds to 2018 is an example of the normal yield curve. Debt securities issued by the U.S. Treasury Department typically exhibit a normal yield curve, whereby the interest rates paid on securities with shorter maturities is lower than rates paid on debt with longer maturities. It is observed when short-term investments yield a lower rate of return than long-term investments. In a normal shaped yield curve, bonds with longer maturity have a higher yield compared to the shorter-term bonds. The shape of yield curve implies future interest rate expectation and economic forecasting. Yields are interpolated by the Treasury from the daily yield curve. Normal Yield Curve: A normal shaped yield curve indicates that long-term investments will garner a higher yield than short-term investments. A normal shaped is usually an indication of economic expansion. A normal yield curve occurs when the market is expecting greater compensation due to greater risk. In December of 2019, the U.S. unemployment rate stood at 3.6% and prime age labor force participation, at 82.9%, was at an 11 year high. 01/09/2021. A normal yield curve is one in which longer maturity bonds have a higher yield compared with shorter-term bonds due to the risks associated with … Definition. Normal Yield Curve. Steep yield curve. By Bob Barbera • Jonathan Wright. 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