On the screen now, you can see a yield curve. A yield curve is simply a plot of bonds yields against various maturities. When you compare yields on maturities like this, all the bonds you're looking at must have the same credit quality. So for example, you plotting yields on all US treasuries, or you're plotting yields on all AA rated issuers, et cetera, et cetera. But they all have to have the same credit quality.

The most common yield curve looks at the yield on three months, two years, five years, and 30 year US treasuries. This treasury yield curve is used as a benchmark against loads of other debt. For example, corporate bonds and mortgage rates, et cetera, et cetera. The shape of the yield curve predicts future interest rate changes, and future economic activity. Here are a couple of examples of yield curves. So the normal case is an upward sloping yield curve. It indicates that investors require higher returns for taking longer term risks. It also suggests that yields probably will rise possibly due to an economic expansion. A downward sloping yield curve kind of expresses the opposite, suggests that yields are expected to fall in the long term, and it's possible sign that investors expect the economy to slow down. And at the bottom you'll see a flat yield curve. That suggests to me a lot of investor uncertainty and quite possibly a change from an expansion to a recession.