There are key theories that explain the Yield curve shapes as per the economic fluctuations:

Pure expectations theory - This theory defines that long-term interest rates differ from short-term interest rates because market players perceive the inflation fluctuations differently. As per the expectations theory, the yield curve moves normally when the interest rate and inflation rate are expected to increase in the future.

Liquidity preference theory - This theory defines that all investors prefer short-term horizons because long-term horizons carried higher interest rate risk. It proposes that investors must be compensated with increased returns on their investments for a longer duration.

Market segmentation theory - This theory tells us that long-term and short-term interest rates are not related to each other. It tells us that prevailing interest rates for all tenure bonds should be viewed separately This theory states that investors prefer to hold their bond till maturity with the respective range due to the assured yields. This theory is also known as segmented market theory. This theory believes that the market for each segment of bond tenure consists of investors who prefer investing in securities with specific durations of short term, intermediate and long term durations.

Preferred habitat theory - This theory tells us that investors are interested in short-term bonds as compared to long-term bonds. It states that in addition to interest rate expectations investors have different investment horizons and expect a good premium to invest in bonds whose tenure is beyond their expected maturity. The preferred habitat theory explains that investors invest in debt securities outside their preference if the investor is well compensated for their investment decisions.