Yield curve
The set of yields available across maturities for the same kind of issuer at one moment, usually plotted from shortest to longest.
Example
Two-year and thirty-year government yields can move by different amounts on the same day, and occasionally in opposite directions.
Important
There is no single interest rate, so the phrase rates rose is imprecise. A bond is exposed only to the part of the curve where its own cash flows sit, and two portfolios with the same average duration can behave completely differently when the curve steepens.
Related terms
- Maturity — The date on which a bond repays its par value and the contract ends. Bonds are commonly grouped as short, intermediate or long by how far away that date is.
- Duration — The present-value-weighted average time until a bond's cash flows are received (Macaulay duration), and by extension the measure of how much its price moves when yields change. Modified duration is Macaulay duration divided by one plus the yield.
- Interest-rate risk — The risk that prevailing yields move and reprice a bond you already hold, because its fixed coupon must now compete with newly issued bonds paying a different rate.
- Basis point — One hundredth of a percentage point. A move from 4.00% to 4.25% is 25 basis points; a move from 4.00% to 6.00% is 200.
Lessons that explain it
All 578 terms in the Investing glossary