A yield curve shows the relationship between the yield on securities and their maturities (how long it is until they can be redeemed at their face value).
Generally, in developed countries, the curve of the yield plotted against maturity will slope gently upwards, reflecting the fact that investors expect to be paid more interest for locking in their investments for a longer period than a shorter one. The higher the rate they expect, the steeper the curve will be.
The shape of a yield curve is, to a degree, seen as a predictor of the future. A downward sloping (or 'inverted') yield curve suggests that investors expect long-term interest rates to fall, and is often taken as a sign that an economic downturn is on the way.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Beginner's guide to investing: the yield curve.
-
Can you afford to retire in 2025?From interest rates and inflation to tax changes, there are plenty of factors to consider if you plan to retire next year – here is how to prepare.
-
8 of the best properties for sale near ski slopesThe best properties for sale near ski slopes – from a luxury cabin in Geilo, one of Norway’s premier ski resorts, to a large chalet in Valais, Switzerland
