The Yield Curve - What Is It?

Investors And Economists Use This Data To Divine The Economy’s Growth Trajectory.

The yield curve, economists love it.

The yield curve is a simple graph that displays Treasury bond interest rates (termed yields) over time. The US Treasury changes the yield curve rates on a regular basis, and analysts and investors use the data to forecast economic growth.

The yield curve shows the yields of bonds with terms ranging from one month to 30 years in the future. A quick-and-dirty yield curve compares the difference in yields between two bonds with different maturity durations, such as a 2-year and a 10-year bond.

The yield curve has three distinct appearances:

Normal:  It's a somewhat upward-sloping curve, since people anticipate a greater return on money they store for longer periods of time. There's generally a little plateau at the end of the yield curve, which means that longer-term bonds have the same yield. When people say that the yield curve is steep, they usually imply that yields are increasing across all maturities, including long-term bonds, which is often a sign of economic expansion.

Inverted:  Bond yields are greatest for nearer-term bonds. When the yield curve inverts, it's an indication that a recession is on its way. People begin to be concerned when the 10-year yield falls below the 2-year note.

Flat:   The yield curve remains stable across maturity dates. When the yield curve is flat, we could be moving from a recession to a period of growth—or vice versa.

Yields on government Treasury bonds have a significant influence on interest rates. For example, mortgage rates follow the 10-year average. The movements of your silly high-yield savings account (HYSA) are also influenced by treasury yields.

In recent months, the yield curve has flattened—particularly between the two- and ten-year yields. Because to the economic growth slowdown that comes with increased borrowing costs, we should anticipate the yield curve to continue flattening as the Federal Reserve raises interest rates in order to reflect this change. As a result, we expect higher mortgage and HYSA rates





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