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Yield Curve

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Definition of 'Yield Curve'

The Yield Curve is the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency.

For example, the United States dollar interest rates paid on Treasury securities for various maturities are commonly plotted on a chart which is called "the yield curve." More formal mathematical descriptions of this relation are often called the term structure of interest rates.

Yield curves are usually upward sloping showing that the longer the maturity the higher the yield. This is because investors demand a higher yield for the higher risk associated with long term investments.

An Inverted Yield Curve is less common and happens when investors think that the economy may be slowing down and that interest rates will decline in the future.

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