Do Yield Curves Normally Slope Up? The Term Structure of Interest Rates, 1862-1982

The downward-sloping yield curves of recent years have been called perverse, but an examination of the history of American interest rates reveals that, at least since the Civil War, falling yield curves have been nearly as common as those with upward slopes. This article summarizes yield curve patterns since 1862 and suggests that 1) the traditional expectations theory remains a viable explanation of observed yield curves; and 2) yield curves since the abandonment of the gold standard in 1971 have much in common with those of the greenback era of 1862-78 but are distinct from those of the gold standard years of 1879-1970. The slopes of yield curves appear to depend upon expectations of future yields as determined by expectations of inflation, which, in turn, depend upon the prevailing monetary standard.