13 Facts About Yield curve

In finance, the yield curve is a graph which depicts how the yields on debt instruments - such as bonds - vary as a function of their years remaining to maturity.

Shifts in the shape and slope of the yield curve are thought to be related to investor expectations for the economy and interest rates.

All securities measured in the yield curve should have similar credit ratings, to screen out the effect of yield differentials caused by credit risk.

Shape of the yield curve is influenced by supply and demand: for instance, if there is a large demand for long bonds, for instance from pension funds to match their fixed liabilities to pensioners, and not enough bonds in existence to meet this demand, then the yields on long bonds can be expected to be low, irrespective of market participants' views about future events.

The most important factor in determining a yield curve is the currency in which the securities are denominated.

Investors price these risks into the yield curve by demanding higher yields for maturities further into the future.

Flat yield curve is observed when all maturities have similar yields, whereas a humped curve results when short-term and long-term yields are equal and medium-term yields are higher than those of the short-term and long-term.

An inverted Yield curve has indicated a worsening economic situation in the future eight times since 1970.

Slope of the yield curve is one of the most powerful predictors of future economic growth, inflation, and recessions.

The yield curve became inverted in the first half of 2019, for the first time since 2007.

Estrella and others have postulated that the yield curve affects the business cycle via the balance sheet of banks .

One important theoretic development came from a Czech mathematician, Oldrich Vasicek, who argued in a 1977 paper that bond prices all along the Yield curve are driven by the short end and accordingly by short-term interest rates.

Usual representation of the yield curve is in terms of a function P, defined on all future times t, such that P represents the value today of receiving one unit of currency t years in the future.