Yield Curve Law and Legal Definition
Yield Curve is a chart showing the relation between the yields of bonds with various maturities. Short-term debt normally has a lower yield than long-term debt. Yield curves are usually upward sloping asymptotically: the longer the maturity, the higher the yield, with diminishing marginal increases (that is, as one moves to the right, the curve flattens out). There are two common explanations for upward sloping yield curves. First, it may be that the market is anticipating a rise in the risk-free rate. If investors hold off investing now, they may receive a better rate in the future. Therefore, under the arbitrage pricing theory, investors who are willing to lock their money in now need to be compensated for the anticipated rise in rates. Thus the higher interest rate on long-term investments.
