Yield Curve Introduction
What is an yield curve and how is it made. The yield curve, is a graph that depicts the relationship between bond yields and maturities, is an important tool in fixed-income investing and attempting to predict future recessions given its track record. Investors use the yield curve as a reference point for forecasting interest rates, pricing bonds and creating strategies for boosting total returns. The yield curve has also become a reliable leading indicator of economic activity.(PIMCO) A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing in maturities. The most frequently reported yield curve compares the three-month, two year, five year and the 30 year U.S. Treasury debt. The yield curve is used as a benchmark for other debt in the market; debts such as mortgage interest rates, bank lending rates and so on. A yield is the interest earned if the bond was purchased at par value and held to maturity. The......
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