Yield Curve

The yield curve is a graph formulated by plotting and linking the yields of a range of bonds of differing maturities in a particular market at one point in time.  In order to build a yield curve, one must use securities, which are comparable.  For instance, a yield curve may be formulated from governmental securities that have a specific credit rating. The yield curve shows if short-term interest rates are higher or lower than long-term rates.  If short-term rates are lower, then there is a concave ‘Positive Yield Curve’.  If short-term rates are higher, then there is an inverted ‘Negative Yield Curve’.  If, however, there is little difference between short-term and long-term rates, a ‘Flat Yield Curve’ prevails.

Upward-sloping positive yield curve.

 

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