The normal yield curve is upwards-sloping as longer-term debt commitments entail relatively higher risks for the issuer to default and are therefore compensated with higher interest rates than short-term debt. Hence, the yield increases with the maturity. In general, we see normal yield curves during periods of economic expansion.
Alternatively, an inverted yield curve is downwards-sloping and often occurs in economical downtrends. This is because the short-term yield is higher than the long-term yield, meaning the yield decreases as the maturity increases. This indicates a lot of uncertainty in the market as one might be hesitant to lend out capital, which is one of the reasons why an inverted yield curve is used as an indicator for economic recessions.
The greater the slope of the curve, the greater the difference in interest rates between short- and long-term debt. However, a flat yield curve means that there is no (or little) difference between debt of different maturities and that they’re expected to remain the same. This can occur when the yield curve changes from normal to inverted.
Historical and current yield curve
The Federal Reserve in the US is one of the most important central banks. This is why, generally speaking, investors refer to the US yield curve when using the term "yield". Another term that is used interchangeably is "treasury". The US yield curve ranges from 3 months to 30 years, where short-, mid- and long-term bonds are often addressed by the front, belly and tail of the curve respectively. Maturities that are most used are 3 months (T-bills) and 2, 5, 10 and 30 years.
As you can see from the chart below, the current difference between the US 3-month and 10-year yield curve increased since the beginning of the year, meaning that we are currently seeing a steepening of the yield curve.