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   Yield Curve
   















 

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Yield Curve

Normal Yield Curve and Forward Curve
Inverted Yield Curve and Forward Curve
A graph illustrating the level of interest rates as a function of time-obtained by plotting the yields of all default-free coupon bonds in a given currency against maturity or, occasionally, duration. Yields on debt instruments of lower quality are expressed in terms of a spread relative to the default-free yield curve. In the diagrams, a normal yield curve on the top features short-term yields lower than long-term yields. The inverted yield curve on the bottom illustrates short-term rates in excess of long-term rates and characterizes periods when the central bank is attempting to restrict growth in the money supply and, hence, the level of economic activity. Forward curves derived from each yield curve are also illustrated. See also Expectations Hypothesis. See Term Structure of Interest Rates, Forward Yield Curve, Implied Forward Interest Rate, Zero Coupon Yield Curve, Prediction Bias.

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