What is the Yield Curve?

The Yield Curve is a graphical representation of the interest rates on debt for a range of maturities. It shows the yield an investor is expecting to earn if he lends his money for a given period of time.  The graph displays a bond’s yield on the vertical axis and the time to maturity across the horizontal axis.  The curve may take different shapes at different points in the economic cycle, but it is typically upward sloping.

A fixed income Analyst may use the yield curve as a leading economic indicator, especially when it shifts to an inverted shape, which signals an economic downturn, as long-term returns are lower than short-term returns.