This is watched closely by investors because a change can be early warning of broader changes in the economy.
When, for example, the yield curve starts to flatten, such that short and longer-term yields are similar, it can be a signal that a full inversion may occur. In the past, this has tended to coincide with recession and contraction as investors shun long-term bonds in favour of the certainty and safety of higher yielding short-dated ones. In short, there is no reward for taking term risk with an inverted yield curve. In a bid to return the curve to its more usual upward slope, a central bank may cut interest rates and apply monetary stimulus in the form of quantitative easing (QE).