<p>The term structure of interest rates refers to the relationship between yields (interest rates) and maturities of bonds. It represents the market's expectations of future interest rates.</p>

<h2>How It Works</h2>
<p>The term structure is typically represented by a yield curve, which plots the yields of bonds with different maturities. The shape of the curve can vary:</p>
<ul>
  <li><strong>Normal:</strong> Short-term yields are lower than long-term yields.</li>
  <li><strong>Inverted:</strong> Short-term yields are higher than long-term yields.</li>
  <li><strong>Flat:</strong> Yields are roughly the same across maturities.</li>
</ul>
<p>Changes in the term structure reflect shifts in market expectations about future monetary policy and economic growth.</p>

<h2>Why It Matters</h2>
<p>The term structure of interest rates is crucial for investors, borrowers, and policymakers. For instance, a <strong>normal</strong> yield curve indicates that investors expect higher returns for lending money over longer periods, reflecting their confidence in economic growth. Conversely, an <strong>inverted</strong> yield curve can signal a potential recession, as it suggests that investors expect lower future growth rates. Central banks also use the term structure to guide monetary policy, adjusting interest rates to influence economic activity.</p>