It's the weekend!

Grab a cup of coffee, in this thread I will explain

1. What is a Yield Curve?
2. Why is it an important indicator of Recession?
3. Is an Economic Recession around the corner?

Lets dive right in!

Before we understand a Yield Curve, lets get some of the basic terminology out of the way

1. What is a Bond?

A bond is a fixed income financial instrument which represents a loan made by an investor to a borrower

The investor typically receives payment in the form of interest and a lumpsum (principal) on maturity

The interest rate on a bond is known as coupon rate.

There are many types of bonds like

1. Zero Coupon : Pays both interest and principal at maturity
2. Sovereign Bonds : Issued by a Government or a Quasi Government Institution
3. Corporate Bonds : Issued by corporate like banks, established companies etc.

Coupon (Interest Rates) on a bond are decided based on the issuer's credit rating

The higher the credit worthiness of the issuer, the lower the coupon rate

Credit Rating on a Bond is usually assigned by credit rating agencies like Moody's or Standard & Poor's (S&P)