A steep curve can occur when the small percentage gap between the shortest maturity bonds (i.e. three-month T-bills) and the longest maturity bonds (i.e. 30-year Treasury bonds) widens because some economic force causes the short-term rates to drop more than long-term ones. A steep curve often forecasts a faster-growing economy because lower short-term rates make it easier for companies to borrow money to expand their operations.

An inverted curve occurs when short-term rates are greater than long-term rates, and is characteristic of investors' positive expectations of the economy. If investors believe that inflation and long-term rates will drop in the future, they would be eager to invest in long-term bonds now or "lock in" high yields while rates are low. Inverted curves may occur as the Fed raises short-term interest rates, and are always followed by economic slowdown. In fact, analysts have viewed inverted yield curves before each of the last five recessions in the U.S.

A humped curve occurs when long-term yields are the same as short-term yields. A common fear is that a humped curve signals the beginning of a recession because the yield curve must pass through this intermediate stage in order to become inverted. Although a humped curve does often signal slower economic growth, the primary force behind an inverted curve is investors' favorable expectations of the future. Other factors such as lower supply of long-term bonds may cause the hump to form.