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U.S. Treasury Yield Curve/ 

  • U.S. Treasury Yield Curve/

  • Definition of yield curve
    According to Investopedia, the yield curve graphs the relationship between bond yields and bond maturity. More specifically, the yield curve captures the perceived risks of bonds with various maturities to bond investors.

    The U.S. Treasury Department issues bonds with maturities ranging from one month to 30 years. As bonds with longer maturities usually carry higher risk, such bonds have higher yields than do bonds with shorter maturities. Due to this, a normal yield curve reflects increasing bond yields as maturity increases. Figure 1 shows a normal yield curve.

    However, the yield curve can sometimes become flat or inverted. In a flat yield curve, short-term bonds have approximately the same yield as long-term bonds. An inverted yield curve reflects decreasing bond yields as maturity increases. Such yield curves are harbingers of an economic recession. Figure 2 shows a flat yield curve while Figure 3 shows an inverted yield curve.

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