Yield Curve
A plot of yields on bonds of the same credit quality across different maturities.
Formula
Test: yields on identical-credit instruments are plotted against their residual maturities at a single point in time
Unit
%
In depth
The government securities curve is the reference for all other rates in an economy, since every other borrower pays a spread above it for the same maturity. Its usual shape is upward-sloping, because lenders demand more for committing money longer, and the extra compensation is the term premium. Changes in shape carry information: the curve steepens when long rates rise relative to short, and flattens or inverts when the reverse happens. It is a snapshot of market pricing, not a forecast, and the widely cited relationship between inversion and recession is a historical association rather than a mechanism.
Worked example
Yields of 6.6% at one year, 7.0% at five and 7.3% at ten describe a normal upward-sloping curve. A shift to 7.4%, 7.1% and 6.9% would be an inversion — short rates above long ones.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Yield Curve” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.