What You Should Know About Yield Curve Investment Trends

Tom Lydon

Why is knowing about the yield curve important to investors? It can be a good leading indicator of economic activity, and it can indicate where investors think the economy is headed. The yield curve plots the interest rates, at a set point in time, of bonds with equal credit quality but differing maturity dates. It’s primarily used to predict changes in economic output and growth.

The yield curve is a line graph that plots the relationship between yields to maturity and time to maturity for bonds of the same asset class and credit quality. The plotted line begins with the spot interest rate (the rate for the shortest maturity) and extends out in time, generally for 30 years.