A positive yield curve results when the interest rate on long-term US Treasury bonds is higher than the rate on on short-term Treasury bills.
You create the curve by plotting a graph with rate on the vertical axis and maturity date on the horizontal axis and connecting the dots. When the curve is positive the highest point is to the right.
In most periods, the yield curve is positive because investors demand more for tying up their money for a longer period.
When the reverse is true, and interest rates on short-term investments are higher than the rates on long-term investments, the yield is negative, or inverted.
That typically occurs if inflation spikes after a period of relatively stable growth or if the economic outlook is uncertain. The yield curve can also be flat, if the rates are essentially the same.
- Browse Related Terms: Level yield curve, Leveraged buyout, Negative yield curve, Positive yield curve, Variable rate, Yield Curve