What's up with the Yield Curve?

The yield curve is a line that plots interest rates (yields) on bonds that have the same credit quality (financial solvency, or the ability for a firm or an individual to pay off debts) but different maturity dates (the day on which the final payment is due). There are two types of yield curves - normal and inverted. In a normal yield curve, short-term debt instruments (in finance, debt instruments are tools used to raise capital) have a lower yield than long-term debt instruments with the same credit quality. Short-term debt instruments are due within a year's time (such as treasury bills) while long-term debt instruments are due after a year (such as long-term loans and mortgages). When the yield curve is normal, it is a sign of high economic activity. A normal yield curve signals that the economy is strong. An inverted yield curve represents the opposite scenario, where short-term debt instruments have a higher yield than long-term debt instruments. In other words, individuals a...