Yield Curve
Definition:
A graph of the interest rates paid on bonds from the same issuer with different maturities.
Example:
The U.S. Treasury yield curve currently shows a 2% spread between 3 month Treasury bills and 30 year Treasury bonds.
More Information:
The yield curve most people follow is the U.S. Treasury yield curve, as it always has issuances at multiple maturities, ranging from 1-month to 30-years. However, yield curves can exist for any company or debt issuer with a range of debt maturities (time to expiration, when the bond must be repaid).
Changes in the yield curve can be an important economic indicator. In normal times, the yield curve is upward sloping, with longer-term maturities having higher interest rates than shorter-term maturities. However, in more volatile times, this spread can narrow, and even invert. Historically, an inverted yield curve for a prolonged period has been a major economic indicator, predicting a recession in the next 12-24 months.
