A yield curve provides a snapshot of the relationship of long-term and short-term bondinterest rates at a particular point in time. Historically, investment analysts and economists have also used yield curves to forecast the outlook for the securities markets and the economy in general.
To create a yield curve, bonds of equivalent investment quality are plotted on a graph, with the horizontal (or x) axis representing the length to maturity, and the vertical (or y) axis representing interest rates. The most common yield curve compares the interest rates on U.S. Treasury debt securities with maturity dates ranging from one month to 30 years.
A positive curve sloping upward to the right — also known as a normal yield curve — indicates that interest rates are higher as the maturities of equivalent bonds lengthen. Analysts have traditionally considered a positive curve a sign of a healthy and expanding economy.
All rates are not created equal
When you hear financial experts discuss the ups and downs of interest rates, it is easy to think of these fluctuations as comprehensive shifts in the entire market. In fact, the cost of borrowing — reflected in the interest rates collected by a lender — depends heavily on the term of the loan, with short-term and long-term rates sometimes behaving independently.
To create a yield curve, bonds of equivalent investment quality are plotted on a graph, with the horizontal (or x) axis representing the length to maturity, and the vertical (or y) axis representing interest rates. The most common yield curve compares the interest rates on U.S. Treasury debt securities with maturity dates ranging from one month to 30 years. 