CandleFocus Glossary Editor
A yield curve is a graph that illustrates the relationship between yields (or interest rates) of different bonds with the same underlying credit. It is a useful tool for investors and market analysts to gauge the overall economic health of an economy, by analyzing the rate of return for maturities (or terms) of varying lengths.
The yield curve is typically shown graphically as a line that connects a series of points, with the points representing yields of bonds with the same credit quality (e.g. government issued bonds), but with different maturities (or terms). The point at which the yield curve starts can vary depending on the length of a bond's term (which itself is affected by the term of the underlying bond which it represents).
There are three main types of yield curves: normal, inverted, and flat. A normal yield curve is one which rises gradually in a uniform fashion; it is a sign that the economy is expanding and that the demand for capital is increasing. An inverted yield curve is one where the yields at different terms fall with increasing maturities; it is typically a sign of an economic slowdown and indicates that the demand for capital has gone down. A flat yield curve is one which sees minimal change in yield with different terms; this indicates that investors are uncertain about the economic direction.
Yield curve rates are published daily by the US Treasury and summarized on the website. This information is useful for investors and market analysts to understand the expectations of future interest rates. A “steep” yield curve, for example, suggests that interest rates are expected to increase in the future, while a “flat” yield curve suggests that interest rates are likely to stay the same for the foreseeable future.
Yield curves help investors make informed decisions about their short-term and long-term investments. They also provide a helpful snapshot of the economic climate at any given time. By understanding the varying types of yield curves, investors can become better educated and more savvy when making their investment choices.
The yield curve is typically shown graphically as a line that connects a series of points, with the points representing yields of bonds with the same credit quality (e.g. government issued bonds), but with different maturities (or terms). The point at which the yield curve starts can vary depending on the length of a bond's term (which itself is affected by the term of the underlying bond which it represents).
There are three main types of yield curves: normal, inverted, and flat. A normal yield curve is one which rises gradually in a uniform fashion; it is a sign that the economy is expanding and that the demand for capital is increasing. An inverted yield curve is one where the yields at different terms fall with increasing maturities; it is typically a sign of an economic slowdown and indicates that the demand for capital has gone down. A flat yield curve is one which sees minimal change in yield with different terms; this indicates that investors are uncertain about the economic direction.
Yield curve rates are published daily by the US Treasury and summarized on the website. This information is useful for investors and market analysts to understand the expectations of future interest rates. A “steep” yield curve, for example, suggests that interest rates are expected to increase in the future, while a “flat” yield curve suggests that interest rates are likely to stay the same for the foreseeable future.
Yield curves help investors make informed decisions about their short-term and long-term investments. They also provide a helpful snapshot of the economic climate at any given time. By understanding the varying types of yield curves, investors can become better educated and more savvy when making their investment choices.