A flat yield curve is essentially a horizontal line representing similar yields for short-term and long-term debt securities in the same credit category, as shown below: Under these circumstances, for instance, a bond with a 30-year term would have virtually the same yield as a similarly-rated bond with only a five-year term.
Share, comment, bookmark or report
A yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. note that the chart does not plot coupon rates against a range of maturities -- that's called a spot curve. The yield curve shows whether short-term bond yields are higher or lower than long-term bond yields.
Share, comment, bookmark or report
The yield curve is the graphical representation of that relationship in the market. If an investor or analyst is good at predicting changes in the yield curve, he or she will be able to benefit from the corresponding change in the prices of bonds. Every bond portfolio has different exposures to how the yield curve shifts -- i.e. yield curve risk.
Share, comment, bookmark or report
The yield curve shows the various yields that are currently being offered on bonds of different maturities. It enables investors at a quick glance to compare the yields offered by short-term, medium-term and long-term bonds. The yield curve can take three primary shapes. If short-term yields are lower than long-term yields (the line is sloping ...
Share, comment, bookmark or report
Convexity is a price-predicting tool for bonds. It also reveals the interest rate risk of a bond and helps investors consider whether a bond' s yield is worth the underlying risk. Most mortgage bonds are negatively convex, largely because they can be prepaid. An issuer 's incentive to call a callable bond at par also increases as interest rates ...
Share, comment, bookmark or report
An investor that can correctly forecast a parallel shift in the yield curve can profit by buying and selling the securities most affected by the shift. A parallel shift in the yield curve occurs when the interest rates among bonds (or T-Bills) with different maturity dates change at the same rate.
Share, comment, bookmark or report
Negative butterfly refers to a change in the yield curve whereby medium-term yields change by a greater magnitude than short-term and long-term yields. It is important to note that the negative butterfly is the opposite of the positive butterfly, where medium-term rates change less than the short-term and long-term rates.
Share, comment, bookmark or report
Market segmentation theory suggests that the behavior of short-term interest rates is wholly unrelated to the behavior of long-term interest rates. In other words, a change in one is in no way indicative of an immediate change in the other. Both must be analyzed independently. Accordingly, the yield curve reflects the market supply and demand ...
Share, comment, bookmark or report
Inverted Yield Curve. If short-term yields are higher than long-term yields, the curve slopes downwards and is called a negative or inverted yield curve: A sharply inverted curve means that investors expect sluggish economic growth with lower future inflation (and thus lower interest rates). Flat Term Structure
Share, comment, bookmark or report
Because the yield curve is generally indicative of future interest rates, which follow an economy 's expansion or contraction, yield curves and changes in yield curves can convey much information. Generally, an inverted yield curve indicates that investors require a higher rate of return for taking the added risk of lending money for a shorter period of time.
Share, comment, bookmark or report
Comments