Yield Curve

A yield curve is a visual representation that plots the yields, or interest rates, of bonds that have equal credit quality but different maturity dates, typically shown with the yield on the vertical axis and the time to maturity on the horizontal axis. The shape and slope of the yield curve provide valuable insights into market expectations for future interest rates and economic activity, with a normal yield curve—upward sloping—suggesting economic expansion, while an inverted curve—downward sloping—can signal an upcoming recession. A flat yield curve, where yields are similar across maturities, often points to economic uncertainty. Investors, policymakers, and analysts closely watch changes in the yield curve as it is considered a leading indicator of economic conditions, with its movements potentially affecting borrowing costs, lending activity, and broader financial markets.