What is a flat yield curve?
The yield curve refers to a line chart that depicts the connection between the proceeds for maturity and time to the maturity of bonds of the same class and the quality of assets. From left to right, the yield curve represents the rate for bonds with the shortest maturity to the longest maturity, usually up to a maturity of 30 years. The flat yield curve means that there is a small difference between short -term and long -term links. The time of maturity applies to the time when it remains until the bond expires, and its holder receives a bond, which is the amount of money originally invested in the bond. The proceeds to maturity concerns the rate of return that the bond generates when it holds until the due date. The seated according to the differences in time to maturity. The normal curve of the yield has an ascending inclination, which means that the increase in yields increases with the expansion of maturity. The inverted yield curve has a tendency down, which means that long -term revenues are lower than that of short -term bonds. A flat yield curve often a manifestationIt is when the yield curve passes between the normal shape and the inverted shape.
The yield curve can often indicate economic expectations. The ascending slope indicates the expectations of higher interest rates in the future, and a sharp upward slope often comes just before economic improvement. The tendency of the down indicates the expectations of lower interest rates in the future and often appears just before the recession. During economic transitions, a flat yield curve usually occurs and only lasts for a short time. Inflation and central bank decisions affect future interest rates and the shape of the yield, so the flat yield curve could also mean that the market believes that inflation is under control and does not change much in the future.
When an investor sees a flat curve of yield, he usually decides to keep short -term bonds rather than long -term bonds. This is because the holding of long -term bonds carries higher risks stemsCustom from larger possible fluctuations. Higher returns usually compensate for greater risks. When the revenues are the same, the investor would gain any benefit from possessing more risky long -term bonds.