Editing Yield curve (section)

====Normal yield curve====
[[File:U.S. Treasury Yield Curves - v1.png|thumb|400px|right|U.S. Treasury yield curves for different dates. The July 2000 yield curve (red line, top) is inverted.]]
From the post-[[Great Depression]] era to the present, the yield curve has usually been "normal" meaning that yields rise as maturity lengthens (i.e., the slope of the yield curve is positive). This positive slope reflects investor expectations for the economy to grow in the future and, importantly, for this growth to be associated with a greater expectation that inflation will rise in the future rather than fall. This expectation of higher inflation leads to expectations that the [[central bank]] will tighten monetary policy by raising short-term interest rates in the future to slow economic growth and dampen inflationary pressure. It also creates a need for a risk premium associated with the uncertainty about the future rate of inflation and the risk this poses to the future value of cash flows. Investors price these risks into the yield curve by demanding higher yields for maturities further into the future. In a positively sloped yield curve, lenders profit from the passage of time since yields decrease as bonds get closer to maturity (as yield decreases, price ''increases''); this is known as '''rolldown''' and is a significant component of profit in fixed-income investing (i.e., buying and selling, not necessarily holding to maturity), particularly if the investing is [[Leverage (finance)|leveraged]].<ref>[http://www.ft.com/intl/cms/s/0/04868cd6-d7b2-11e0-a06b-00144feabdc0.html 'Helicopter Ben' risks destroying credit creation], September 6, 2011, [[Financial Times]], by [[Bill H. Gross|Bill Gross]]</ref>

However, a positively sloped yield curve has not always been the norm. Through much of the 19th century and early 20th century the US economy experienced trend growth with persistent [[deflation]], not inflation. During this period the yield curve was typically inverted, reflecting the fact that deflation made current cash flows less valuable than future cash flows (i.e. the purchasing power of $1 would increase over time). During this period of persistent deflation, a 'normal' yield curve was negatively sloped.