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Yield curve

A plot of Treasury yields across maturities from 1 month to 30 years; its shape reflects expectations for growth, inflation, and Fed policy.

Three shapes of the yield curveNormal, flat and inverted curves plotted against how long a bond has left to run.One line is one day's picture of what bonds of each length pay.5%4%3%2%1%Yield (%)3 months2 years5 years10 years30 yearsTime until the bond maturesNORMALlong pays moreFLATmuch the sameINVERTEDshort pays more
Three shapes of the yield curve. The yield curve plots the interest a bond pays against how long you have to wait to get your money back. Normally longer bonds pay more; sometimes every maturity pays the same, and sometimes short bonds pay the most.

Normally longer maturities yield more than shorter ones, because lenders want compensation for time. The curve steepens when growth or inflation expectations rise and flattens when the Fed hikes short rates.

The 2-year yield tracks expected federal-funds-rate policy; the 10-year tracks longer-term growth and inflation views. Their difference is the most watched spread; see inverted-yield-curve.

Example: the 2-year yields 4.8% and the 10-year yields 4.3%. The 2s10s spread is -0.5%, an inverted curve.

Related: inverted-yield-curve, federal-funds-rate, fomc, quantitative-tightening

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