Cointelegraph
English

Yield Curve News

A yield curve is a graphical way to compare the yield on similar loans with different maturities. Several factors determine the course of the yield curve, including inflation expectations, liquidity, expectations of interest rates and the creditworthiness of the debtor. Throughout the business cycle, the behavior of the yield curve varies. For instance, short-term bond yields tend to be low, while long-term bond premia are high during recessions. Because of this, yield curves during recessions are upward sloping. 

In addition to the “normal” yield curve, there can also be a rising, inverse or flat yield curve. A rising yield curve appears at the start of an expansionary phase where short-term interest rates fall due to the economy’s stagnation. During a recession, upward-sloping yield curves signal both brighter times in the future and bad ones in the short term. However, once the economy starts to expand, one of the initial indications of recovery is a rise in the demand for capital, which may cause inflation.

A flat yield curve can be found when the interest rates for different maturities are around the same level. This is undesirable for banks because they make money from savings and mortgages. An inverse curve means that the graph line starts at the top left and ends at the bottom right. This is a situation that is particularly visible in times of economic hardship.