Definition of Yield Curve
What is a Yield Curve
A yield curve is a graph that plots the yields or interest rates of bonds with similar credit quality and maturity against their respective time to maturity. The yield curve is used as an indicator of the market's expectations for future economic growth, inflation and interest rates.
Slope of a Yield Curve
A yield curve typically slopes upwards, indicating that bonds with longer maturities have higher yields than bonds with shorter maturities. This is because investors demand a higher return for the greater risk of holding longer-term bonds. However, there are also instances when the yield curve can slope downwards or flatten, indicating different market expectations.
Interpreting a Yield Curve
The shape of the yield curve can provide insight into the market's outlook on the economy. A normal yield curve slopes upwards, with longer-term rates higher than short-term rates, indicating a healthy economy with expected growth and higher inflation. A flat yield curve, with little difference between short and long-term rates, may indicate uncertainty or a potential economic slowdown. An inverted yield curve, where short-term rates are higher than long-term rates, is seen as a warning sign of an impending economic downturn.
The yield curve is closely watched by investors, analysts and policymakers as an indicator of market sentiment and potential future economic conditions. It can be used to help inform investment decisions and guide monetary policy.
GlobEx Markets Financial Dictionary of Terms, Phrases and Concepts
The GlobEx Markets financial dictionary is a reference resource that provides the definitions and explanations of various financial terms, phrases and concepts that are used in international finance and global investing. It includes a broad range of financial terms, such as those related to stocks, bonds, currencies, commodities, options, futures, crypto and much more.
A financial dictionary can be useful for anyone who wants to learn more about finance and investing, or who works in the financial industry. It can help clarify the meaning of technical terms and the language used in financial publications, reports and other sources.
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There are several benefits to using the GlobEx Markets financial dictionary, including:
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