Yield curve

A yield curve is a chart plotting the yields of bonds from the same issuer, most commonly US Treasuries, across a range of maturities, from very short-term bills out to bonds maturing decades in the future. It shows how much yield investors demand for lending money for different lengths of time.

Under normal conditions, the yield curve slopes upward, since investors typically require more yield to compensate for the added uncertainty of tying up money for a longer period, a relationship connected to what is known as the term premium. The curve's shape shifts constantly with changing expectations for economic growth, inflation, and Federal Reserve policy, flattening when the gap between short and long yields narrows, and in less common cases inverting, when short-term yields rise above long-term yields.

Because the yield curve reflects the market's collective view of the future all at once, it is one of the most closely watched indicators in finance. An inverted yield curve in particular has preceded most US recessions over recent decades, and shifts in the curve's shape also directly affect borrowing costs across the economy, from mortgage rates to corporate financing, since so much lending is priced off some point along the Treasury yield curve.