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.