Term Structure of Interest Rates

Term Structure of Interest Rates

relationship between bond yields and maturities.

Term Structure of Interest Rates

It describes the relationship between long- and short-term rates.

Term Structure of Interest Rates

It is important to corporate treasurers deciding whether to borrow by issuing long- or short-term debt and to investors who are deciding where to buy long- or short-term bonds.

Yield Curve

a graph showing the relationship between bond yields and maturities.

1. Normal Yield Curve

2. Inverted (Abnormal) Yield Curve

3. Humped Yield Curve

3 Yield Curves

Normal Yield Curve

an upward-sloping yield curve.

Inverted (Abnormal) Yield Curve

a downward-slopping yield curve.

Humped Yield Curve

a yield curve where interest rates on intermediate-term maturities are higher than rates on both short-and long-term maturities.