Yield Curve

A graph showing the term structure of interest rates by plotting the yields of all bonds of the same quality with maturities ranging from the shortest to the longest possible. The Y-axis represents the interest rate and the X-axis represents time with a normal curve being convex in shape.

A yield curve shows the relationship between the yields on short-term and long-term bonds of the same investment quality.

Since long-term rates are characteristically higher than short-term rates, a yield curve that confirms that expectation is described as positive. In contrast, a negative yield curve occurs when short-term rates are higher.

A flat or level yield curve occurs when the rates are substantially the same.