It can also be downward sloping, or inverted, if the short-term interest rates exceed the rates on bonds with long-dated maturities. To begin our discussion of the yield curve, it is worth revisiting the Fisher equation, named after American economist Irving Fisher.
The textbook equation states that nominal interest rates are equal to the required real rate of return on the funds invested, plus the expected inflation rate over the period of the investment. So it is clear that expected inflation plays an important role. The Fisher equation can be modified to include a risk margin in the calculation of the nominal interest rate.