By David Randall

NEW YORK (Reuters] – Investors are focusing on the Treasury yield yield curve. The yield advantage of longer-dated securities over those with shorter maturities is expected to shrink at the fastest pace since 2011.

Managers of money and economists see shrinking yields on short-term Treasuries as signs of uncertainty and worries about economic growth.

This is a brief primer on what a flat yield curve looks like and how they may be used to reflect investor expectations.

What is the U.S. Treasury YIELD Curve?

U.S. Treasury is a bank that finances the federal government’s budget obligations through various types of debt. Treasury bills are issued from 1 month to 1 year. Notables range from two to 10 years. Bonds of 20 and 30 years can also be included in the $14.8 trillion Treasury Market.

The yield curve shows the yield for all Treasury securities. Investors watch its form to extrapolate market expectation regarding U.S. economic growth and monetary policies.

The trend is usually upward because investors anticipate more in return for taking on higher inflation risk. Because a 10-year note has a longer term, it will yield more than a 2-year one. Prices are inversely related to yields.

Sometimes the yield curve inverts, which can cause economic problems for the near-term. This is a common phenomenon and has been a predictor of past recessions.

WHY DOES THE YIELD CURVE STILL FLATTEN NOW?

It is expected that the Federal Open Market Committee will announce, at Wednesday’s November meeting of monetary policy, that it will start tapering its $120-billion-per-month bond-buying program.

Although this was well known to investors, many are beginning to fear that rising inflation could force the central banks to accelerate its bond buying and raise interest rates faster than expected.

In recent days, short-term yields rose due to higher expectations for faster than expected rate rises. Analysts have indicated that longer-term yields have declined partly because of bets on a more hawkish policy to reduce inflation. This will prevent the need to raise borrowing costs at the same level as was previously predicted over the long term.

While rate increases are a tool against inflation, they also have the potential to slow down economic growth. They increase borrowing costs for everything from car loans and mortgages.

Federal Reserve signalled that interest rates will not be raised until the next year. It also stated that borrowing costs would rise by at least 1 percent from their current rate, which is 0 to 0.2%. [L1N2RO2FM]

IS THE WHOLE YIELD CURVE UPWARD SLOPING?

There is no. Yes. The yield of the 20-year bond was higher than the 30 year bond on Thursday.

ARE FLATTER YIELD CURES COMMON IN OTHER COUNTRIES AS WELL?

It is not only a phenomenon that affects the United States. The short-term interest rates in Australia, Germany (and Canada) have increased rapidly as central banks plan to tighten monetary policy at a quicker pace than anticipated.