What is a Yield Curve?
A yield curve is a series of average yields from now into the future. This helps investors determine the yields they can earn in the market for a given set of maturity years in the future. For instance, the average yield for 2010 maturities can be 1.5%; the average yield for 2020 might be 4%. On a basic level, this allows investors to see that on average, allowing your money to be tied up for another 10 years will give you 2.5% more than if you were only willing to have it tied up for 1 year. When the difference in yield between shorter maturities and longer maturities are very low, the yield curve is described as flat, flattening, or flattened. When the difference in yield between shorter maturities and longer maturities is high, the yield curve is steep, steepening, or steepened. Sometime the yield curve can also be inverted; this is when the yields on shorter maturities are higher than the yield on longer maturities. Lots of factors determine the relationship between the yields that
The yield curve is a simple financial chart or graph. The chart shows investors from around the world what to expect in the future from the US Federal Reserve. It also shows the effects the reserve will have on US interest rates, economy and inflation. A yield is commonly defined as a crop or harvest; in this case the harvest is financial. They yield curve shows the present yields of the Treasury’s securities at different stages of maturity. From 30 year T-bonds to 3 month T-bills, future expectations can be plotted on the yield curve chart. People who work in the field of finance, such as bond investors, analyze the yield curve and try to work out its meaning for the future. Using the chart, bond investors try to work out different yields expected on short-term securities compared to long term ones. Long-term maturities usually have higher yields than short-term ones; this is seen as a normal yield. As this is the norm, it is shown on the chart as a positive slope. The curve is invert
