 In today's session, we are going to discuss the concept of yield curves. When we discuss the concept of stock markets, financial structure, financial system, it is important to understand what is meant by a yield curve. The yield curve basically explains the relationship between yields and the various maturity times. In other words, we can say that it is a linear relationship between the maturity of bonds or stocks or whatever financial instrument you are taking. And it is on one hand and on the other side, we are going to take into account the interest rate or the yields which we are going to get from these stocks or bonds or any other financial instruments. So this is a line in which we take the yield or interest rate on the vertical axis and on the x axis or on the horizontal axis, we take the maturity time period. The slope of the yield curve tells us how our economic situation is going to be in the future. So it predicts that what is going to happen in the financial markets and overall economy in the coming time or in future. So we have three types of yield curves. The first one is the normal yield curve which is an upward sloping. I am going to draw it for you in a while. So upward sloping yield curve, we have an inverted downward sloping yield curve and the third type of yield curves we have is a flat yield curve. So according to the maturity time period of returns, the shape of the yield curve is going to be defined or it tells us how the financial sector is going to influence the economy in the future and how the economy is going to perform over a period of time. So when we talk about the normal or an upward sloping yield curve, it means that longer term bonds or the bonds whose maturity time period is more, their yield is obviously more. So in the diagrammatic form, if we plot the yield curve and upward sloping yield curve, we can take the yield or the interest rate on the vertical axis and the maturity time of bonds on the horizontal axis. So it shows that if a bond is going to mature in for example one year, the interest rate it is going to yield is for example 4%. But if we are talking about a bond which will mature in say 10 years, naturally the yield or the interest rate which we are going to get from this particular bond which is going to mature in 10 years will be 12%. So if the maturity time period is longer, we are going to have a higher interest rate. As a consequence, we get this upward sloping yield curve. So if this is a situation, then we say that people are happy about the, they are optimistic about the future and they know that if we invest for the long term, then naturally we are going to benefit a lot. And that is why it is promised that the interest rate on the bonds in the future time period will be higher as compared to the short term bonds that you are getting for the return. So this is the normal usual shape of a yield curve. And if this is a situation, it shows that there is prosperity coming in the future or things are good, the economy is expanding, it is improving. On the contrary, if we see that the long term maturity bonds of the future have less interest rates and the short term bonds have higher interest rates, then we come across a different kind of a situation which can be explained in terms of an inverted yield curve. So as the name specifies, it has been inverted here, which we just talked about. What was it before and what should usually be? When you invest in long term bonds, the interest rate that you get on the long term bonds is promised. That is higher as compared to when you buy short term bonds that are going to be stolen after a year or a year and a half or two years, the interest rate should naturally be less. But sometimes when investors are forcing that things in the future are not going to be okay, they are going to be some recession or some pessimist opinion of the investor, so they are seeing that in the future it is possible that we do not promise a higher interest rate. We are borrowing investment bonds for the long term. We are selling bonds to people in the form of bonds for the long term which will be mature over 5 years or 6 years or 10 years. The interest rate on that is offering a little. In the future, things are not going to be better. Rather, they give promise a higher interest rate on short term bonds. If such a situation happens, this kind of a situation can be explained graphically using the concept of inverted yield curve. And if we are forcing, if your yields are inverted by accounting for long term or short term, that means that something is going to be wrong in the future. People are not happy that your investors are not forcing that there will be a good situation. So, when we talk about the inverted yield curve, again, I would take the yield or the interest rate on the vertical axis. And the maturity time period, different bonds are taking time period when they will be mature. Again, it will be 1 year, 2 years, 3 years, something like that. So, the inverted yield curve will be something like this in which you can see that the short term bonds are higher and the long term bonds are lower. So, suppose this is 2% and this is 4%. So, you can see that if such a situation happens, we explain this particular situation or scenario through the inverted yield curve. The third type of yield curve we have is the flat yield curve. So, what is the flat yield curve? If you are sitting in a situation of a normal yield curve and things are not okay in the future, it is forcing that there should be no higher interest rate on the long term stocks or long term bonds. So, in such a situation, the curvature of the curve becomes like a straight line. So, similarly, if things are getting better, there is no recession or financial or economic situation of the economy. But it is forcing that things will get better in the future. So, what will happen is that the long term bonds will start increasing the interest rate. So, when it starts increasing naturally, the downward sloping inverted yield curve will change in its curvature and it will start becoming flat. So, when it becomes flat, we would say that this is a special type of another special type of yield curve which is a flat yield curve. Or again, we observe that whenever there is an economy which is transitioning or moving from a recession situation, an economic scenario where there is recession to some sort of recovery, then you will see that the inverted yield curve will start becoming flat and that particular situation will be represented through the flat yield curve. And eventually, there may be a situation where things go better, things improve significantly, the situation has become much better due to the financial market. And again, the same situation has happened. Contrary to the past, you are being offered a higher interest rate on the long term bonds. On the short term bonds, you are being offered a lower interest rate. So, in such a situation, your inverted yield curve will transform into a normal yield curve. But the phase in between that will be represented through a flat yield curve. And what does a flat yield curve mean? That you can represent it through a horizontal straight line.