What can the slope of a yield curve or term structure tell us?

Interview Question: What can the slope of a yield curve or term structure tell us?

Answer:

The yield curve is the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt.

1) An upward sloping yield curve can indicate a period of economic expansion.

2) A downward sloping yield curve can indicate a period of recession.

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