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What is a yield curve?

What is a yield curve?

Answers

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.



The shape of the yield curve gives an idea of future interest rate changes and economic activity.
There are three main types of yield curve shapes: normal, inverted and flat (or humped). A
normal yield curve is one in which longer maturity bonds have a higher yield compared to
shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition.

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Titany answered the question on November 12, 2021 at 08:01

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