yield curve

(noun)

A curve that shows the compounded interest rate applied to the value of the security over its lifetime.

Related Terms

  • recessions
  • treasury bill
  • Treasury bond

(noun)

the graph of the relationship between the interest on a debt contract and the maturity of the contract

Related Terms

  • recessions
  • treasury bill
  • Treasury bond

Examples of yield curve in the following topics:

  • Using the Yield Curve to Estimate Interest Rates in the Future

    • Yield curves on bonds and government provided securities are correlative, and are useful in projected future rates.
    • This is referred to as a yield curve.
    • Inverted yield curves are typically predictors of recession, while positively sloped yield curves indicate inflationary growth.
    • When it comes to interest rates specifically, yield curves are useful constructs in projecting future behavior.
    • This yield curve from 2005 demonstrates the projected yield over time of USD.
  • The Yield Curve

    • In finance the yield curve is a curve showing several yields or interest rates across different contract lengths (two month, two year, 20 year, etc...) for a similar debt contract.
    • Based on the shape of the yield curve, we have normal yield curves, steep yield curves, flat or humped yield curves, and inverted yield curves .
    • The yield curve is normal meaning that yields rise as maturity lengthens (i.e., the slope of the yield curve is positive).
    • A flat yield curve is observed when all maturities have similar yields, whereas a humped curve results when short-term and long-term yields are equal and medium-term yields are higher than those of the short-term and long-term.
    • An inverted yield curve occurs when long-term yields fall below short-term yields.
  • Term Structure of Interest Rates

    • Yield curve for years 2000 and 2006 predicted the recessions in 2001 and 2007.
    • Yield curve could display a positive, negative, or flat slope and has two characteristics.
    • Economists use the yield curve to predict economic activity.
    • Although many economists and analyst use the yield curve to forecast recessions, the yield curve is not a perfect predictor.
    • The Yield Curve for U.S. government securities for three specific dates
  • Chapter Questions

    • Explain both the term structure of interest rates and the yield curve.
    • Which three theories explain the characteristics of the yield curve?
    • If you saw a yield curve with a negative slope, which economic phenomenon would you predict to occur in a year?
  • The Term Structure

    • Term structure of interest rates is often referred to as the yield curve.
    • In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc...) for a similar debt contract.
    • Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward.
    • This theory explains the predominance of the normal yield curve shape.
    • The US dollar yield curve as of February 9, 2005.
  • Calculating Yield to Maturity Using the Bond Price

    • The yield to maturity is the discount rate that returns the bond's market price: YTM = [(Face value/Bond price)1/Time period]-1.
    • The yield to maturity is the discount rate which returns the market price of the bond.
    • Formula for yield to maturity: Yield to maturity(YTM) = [(Face value/Bond price)1/Time period]-1
    • As can be seen from the formula, the yield to maturity and bond price are inversely correlated.
    • Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the yield-to-maturity bargained for when the bond was purchased was only 10%, the return earned over the first 10 years is 16.25%.
  • Market Supply

    • As a result, the supply curve is upward sloping .
    • Market supply is the summation of the individual supply curves within a specific market.
    • The supply curve can be derived by compiling the price-to-quantity relationship of a seller.
    • The market supply curve is simply the sum of every seller's individual supply curve.
    • The market supply curve is an upward sloping curve depicting the positive relationship between price and quantity supplied.
  • Long Run Supply Decisions

    • The long-run supply curve in a perfectly competitive market has three parts; a downward sloping curve, a flat portion, and an upwards sloping curve.
    • This period of supply is known as "increasing returns to scale," because a proportional increase in resources yields a greater proportional increase in output.
    • Between these two periods is the "constant returns to scale," where a proportion increase in resources yields an equal proportional increase in the amount of output.
    • As more firms enter the market and time passes, production yields less and less returns in comparison to the production.
    • Eventually, production of goods in a market yields less of a return than the amount of goods that go into product, which causes the market to enter into a period of decreasing returns to scale and the market's supply curve slopes upward.
  • Banked and Unbacked Highway Curves

    • In an "ideally banked curve," the angle $\theta$ is chosen such that one can negotiate the curve at a certain speed without the aid of friction.
    • As an example of a uniform circular motion and its application, let us now consider banked curves, where the slope of the road helps you negotiate the curve.
    • The greater the angle $\theta$, the faster you can take the curve.
    • In an "ideally banked curve," the angle $\theta$ is such that you can negotiate the curve at a certain speed without the aid of friction between the tires and the road.
    • Friction helps, because it allows you to take the curve at greater or lower speed than if the curve is frictionless.
  • Basics of Graphing Exponential Functions

    • That is, the curve approaches infinity as $x$ approaches infinity.
    • The curve approaches infinity zero as approaches infinity.
    • As $1$ to any power yields $1$, the function is equivalent to $y=1$ which is a horizontal line, not an exponential equation.
    • The point $(1,b)$ is always on the graph of an exponential function of the form $y=b^x$ because any positive number $b$ raised to the first power yields $1$.
    • The function $y=b^x$ takes on only positive values because any positive number $b$ will yield only positive values when raised to any power.
Subjects
  • Accounting
  • Algebra
  • Art History
  • Biology
  • Business
  • Calculus
  • Chemistry
  • Communications
  • Economics
  • Finance
  • Management
  • Marketing
  • Microbiology
  • Physics
  • Physiology
  • Political Science
  • Psychology
  • Sociology
  • Statistics
  • U.S. History
  • World History
  • Writing

Except where noted, content and user contributions on this site are licensed under CC BY-SA 4.0 with attribution required.