Yield Curve Inversion

A Yield Curve Inversion occurs when short-term interest rates (such as the 2-year government bond yield) rise above long-term interest rates (such as the 10-year yield), flipping the normally upward-sloping yield curve downward. This inversion is widely regarded as one of the most reliable leading indicators of an economic recession, as it reflects a market consensus that near-term rates will be forced higher by current inflationary conditions but that the economy will eventually slow, prompting rate cuts in the future. In the US, an inverted yield curve has preceded every recession in the past 50 years. In India, the shape of the G-Sec yield curve is monitored by debt fund managers, banks, and macro investors as a key signal of monetary policy trajectory and economic growth expectations.