Yield Curve

The yield curve is a graphical representation of the Interest Rates on debt for a range of maturities. Typically, it shows the relationship between short-term and long-term Interest Rates, indicating how much return investors expect for holding Bonds of varying lengths. An upward-sloping curve suggests that longer-term Bonds have higher yields than short-term ones, often indicating economic growth. Conversely, an Inverted Yield Curve occurs when short-term rates exceed long-term rates, potentially signaling a recession.

For example, a normal yield curve might show 1% for a 1-year bond, 2% for a 5-year bond, and 3% for a 10-year bond. In contrast, an Inverted Yield Curve might show 3% for a 1-year bond and 2% for a 10-year bond, hinting at investor uncertainty about future economic conditions.