Why does a ten-year government bond usually offer a higher yield than a two-year bond? And why does that gap sometimes shrink, disappear, or even invert (short-term rates higher than long-term rates) just before a recession? The answer lies in the term structure of interest rates – the relationship between yields on bonds of different maturities. This chapter shows how long-term rates are built from what people expect future short-term rates to be, plus extra compensation for risk, and how central banks influence the whole curve.