The shape of the yield curve holds high importance. There are 4 different shapes that a yield curve can be, all with different possible outcomes: Upward (normal), inverted, steep, or flat. A yield curve with an upward shape tells us that we are in a phase of economic growth or expansion. This correlates to higher interest rates and long-terms bonds offering higher yields than short-term bonds. An inverted shape is the exact opposite. This shape signals a recession may arise. A steep curve represents significant economic growth. Long-term interest rates are rising at a higher rate than short-term rates. Lastly, a flat yield curve is most likely when a transitional economic period is happening. Caution plays a bigger role during this time and investors are focused on investing in inflation hedges.