 Fixed analyst use yield curves as leading economic indicator

 An inverted shape indicates economic downturn – long term lower returns.

 Normal yield curves – represents liquidity preference theory that short term interest rate are
lower than long term interest rates

 Inverse/ negative/ positive/ down-sloped yield curves - ‘Pure Expectation Theory’ that markets
expect the interest rates to behave over time as directed by economic indicators i.e. the rate of
inflation. Long term interest rates are lower than short term

 Steep yield curve – investors expect the interest rates to rise high in the future

 Flat yield curve – yields of maturity are close to each other

 Humped curve has normal curve in shorter periods and dips down in longer term representing
the ‘Market Expectation Theory’. Supply and Demand pressures in various sub markets.