RIDE TO US TREASURY YIELD CURVE
A yield curve that reflects the movement of bond yields. Right now the yield curve has been the talk of the town. Now there are generally three types of the yield curve that define the economic growth going into the future and also define the expectations of market participants regarding the current levels of interest rates. Also, it serves as a benchmark for debt markets like mortgage lending. The most used yield curves are three years, 2 years, 10 years, and 30 years. The comparison is made between these yield curves only.
There are generally three types of yields curves.
- Normal Yield Curve- In this type of yield curve the longer maturity bonds have higher yields as compared to the shorter maturity bonds. This type of yield curve predicts economic expansion and stable economic conditions. The slope of the yield curve is upwards
- Steep Yield Curve- Although this type of yield curve is the same as a normal yield curve but in this, the pace of rising longer-term yields is faster compared to the short-term bond yields. As there is a large difference between the longer-term bond yields and short-term bond yields. Generally, this type of yield curve leads to higher inflation and higher interest rates.
- Inverted Yield Curve- In this type of yield curve the slope is downwards. The short-term interest rate exceeds the longer-term interest rates. Although this type of yield curve predicts an economic recession. In this, the longer-term yields are lower as compared to the shorter-term bond yields. Investors seeking safe investments tend to purchase longer-dated bond securities. This takes the price of longer-term bonds higher and yields lower. As the bond prices move opposite to the bond yields.
- Flat Yield Curve- In this type of slope is flat. The yields are the same across all the maturities. Although a few bond yields experience higher yields. Such kind of situation implies a higher uncertain environment. This yield curve can come at the end of higher economic growth.
- Humped Yield Curve- It occurs when the medium-term yields are greater than the short-term and long-term. It is rare. It generally indicates slowing economic growth.
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