Yield curve

Yield curve
The graphical 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. The New York Times Financial Glossary

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   The graphical representation of the yields of a set of bonds or other instruments with the same credit risk and currency, but different maturities. Yield is plotted along the vertical axis and time to maturity on the horizontal axis. There are many different yield curves, including government benchmark curves, deposit curves, swap curves and credit curves. Benchmark curves consist of securities that meet certain criteria for liquidity, size, price, availability, turnover rate and other characteristics. These securities set standards for the market against which other issues can be measured. A yield curve is not static and can change quickly at any time. For example, a word or two from a central banker can fuel expectations of higher inflation, which may cause longer-term debt prices to fall more than short-term prices. The nominal yield curve is positive, rising from left to right, because yields on longer maturities are higher than on short maturities to reflect the greater risk of lending money for a longer time. If the yield curve is positive sloping it will steepen as the longer yields move up more than the shorter ones. An inverted, or negative, yield curve slopes downward from left to right, with short-term yields higher than long-term yields. Investors may be expecting a reduction in inflation in the longer term or there may be expectations of sharply reduced supply of bonds, both of which will depress yields. (Figure 18.)
   ► See also Maturity.

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yield curve UK US noun [C] FINANCE, GRAPHS & CHARTS
a line on a graph that shows the relationship between the interest rate of bonds and the time left until they have to be paid back: »

Hong Kong is one of the few Asian debt markets to have a benchmark yield curve for maturity up to 10 years.


a flat/inverted/rising yield curve

Financial and business terms. 2012.

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