{"id":1512,"date":"2023-09-30T20:29:00","date_gmt":"2023-09-30T20:29:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=1512"},"modified":"2023-11-01T20:41:43","modified_gmt":"2023-11-01T20:41:43","slug":"yield-curve","status":"publish","type":"post","link":"https:\/\/businessyield.com\/terms\/yield-curve\/","title":{"rendered":"YIELD CURVE: Understanding Yield Curve with Ease (Detailed Explanation)","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Yield curve is for investors in bond. The simplified meaning of yield curve is a curve plotted on a graph that shows the yields of different bonds that have different maturities, typically from three months to 30 years.<\/p>\n
Do we know what a bond is?<\/p>\n
A bond is a financial instrument that has a fixed income, typically representing a loan you gave to a corporate organization or the government. They use these bonds to finance projects. At the end of the term (period) of the bond, the bond issuer (government or corporate organization) will have to pay back their investors.<\/p>\n
It is likened to you as a businessman going to get a loan from the bank. But in this case, the loan is between an individual and the government.<\/p>\n
A bond has fixed interest rates as well. Some have variable interest rates. This is because there are different types of bonds.<\/p>\n
Moving on, we will discuss yield curve meaning, analysis, and inversion.<\/p>\n
The yield curve meaning is a way to measure how the bond investor feels about risk and return.<\/p>\n
YC shows graphically the interest rates between long and short-term bond yields.<\/p>\n
In the plotting of the graph, the bond yield is on the vertical axis and the years to maturity on the horizontal axis.<\/p>\n
It shows the cost of long and short term investments and allows companies to decide their capital structures and when to change an already existing one.<\/p>\n
Capital structure is the financing mix organizations operate with. They can decide to use just equity capital as its financing tool or just debt. They may also use a mix of equity and debt.<\/p>\n
For example, let us consider the following data obtained from US Department of Treasury website regarding yield on US treasuries.<\/p>\n