Yield curve

The relationship between the yield on bonds which have the same credit rating but different maturity dates when plotted on a graph. The maturities are on the x-axis while the yield is on the y-axis. The yield curve is closely monitored because it can indicate future changes in interest rates and activity levels within the economy. A normal yield curves trends upwards and shows that interest rates for long-term bonds are higher than those for short-term bonds. An inverted yield curve trends downwards and indicates that short term rates are higher than their long-term counterparts. This is considered a warning sign that a recession is likely. A flat yield is when short-term and long-term yields are very similar and can also hint at economic problems ahead.

This definition is for general information purposes only