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Finance Dictionary and Glossary of Investment Terms
A curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time.
A graph of the bond yields available at a given moment in time, with the dividend yield rising along the vertical line and bond durations moving outward along the horizontal line. A typical yield curve is rising, or positive, because bonds of a longer duration pay more interest. The sharper the slope of this curve, the less additional duration you need for a higher yield. An inverted or negative yield curve, which goes downward because short-term rates are higher than long-term rates, is considered a sign that a recession is in the offing; high short-term rates will work their way through the economy, putting the brakes on growth. If short and long-term rates are the same, the yield curve is flat. The bonds typically plotted on a yield curve are Treasury securities.
The graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The yield curve can accurately forecast the turning points of the business cycle.
A graphic line chart that shows interest rates at a specific point for all securities having equal risk, but different maturity dates. For bonds, it typically compares the 2 or 5 year treasury with the 30 year.