Bond investors typically use yield curves to help find a maturity that maximizes return at an acceptable
risk level. For instance, you may find increasing a bond's maturity by a couple of years will increase return significantly or committing funds for a long time does not bring much additional return.

Economists study yield curves to help predict inflation, interest rates, and recessions. To do so, you need
to understand what the various shapes in the yield curve indicate about the economy:

• The yield curve's normal shape is upward sloping, since interest rates usually rise as the bond's maturity
  increases. An upward sloping yield curve indicates investors believe the economy is healthy and do not expect interest rates or inflation to increase significantly in the near future. The spread between a three-month Treasury bill and a 25+-year Treasury bond is typically 3% (Source: AAII Journal, May 2003).
  
  
  
  
• A steep upward sloping yield curve indicates
  investors believe the economy will improve quickly in the future
  and is typically seen at the beginning of an economic expansion.
  Short-term rates are typically depressed due to a recent recession.
  Once economic activity starts to pick up and demand for capital
  increases, short-term rates typically increase so the curve becomes
  less steep.
  
  
  
  
• A flat yield curve occurs when short-
  and long-term rates are almost the same. It generally indicates
  that an economic slowdown and lower interest rates will follow.
  
  
  
  
• An inverted yield curve occurs when short-term
  interest rates are higher than long-term rates and is an indicator
  that a recession is likely to follow. An inverted yield curve
  typically means the Federal Reserve is increasing short-term
  rates in an attempt to slow the economy or investors are locking
  in long-term rates in anticipation of an economic downturn.