Markets & Economy

 

The yield curve: What it is and what it means

July 22, 2013
 
 

How to make sense of the yield curve

The yield curve is one way to look at interest rates. It shows the rates—or yields—offered by bonds of different maturities. It is usually based on U.S. Treasury bonds.

The yield curve is always changing, depending on the direction of interest rates in the marketplace. The shape of the curve is one indicator that economists look at when they try to forecast what's ahead for the U.S. economy and the markets. Managers of actively managed funds look at it, too, when deciding which securities to hold.

This video explains the yield curve's basic shapes.

Notes:

  • The hypothetical illustrations do not represent the return on any particular investment.
  • All investing is subject to risk, including the possible loss of principal.
  • Investments in bonds and bond funds are subject to interest rate, credit, and inflation risk.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
  • While U.S. Treasury or government agency securities provide substantial protection against credit risk, they do not protect investors against price changes due to changing interest rates.
  • Past performance is not a guarantee of future results.