# Yield Curve

Essay by lakeUniversity, Master'sA+, January 2006

1. What is plotted on the yield curve? Be specific about the X and Y axes. Be specific about which securities' yields are plotted on a yield curve.

U.S. Treasury Yield Curve

A yield curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time. Yield curves are used to compare yields of different securities, to benchmark rates and to discover yield curve aberrations.

A yield curve is a chart that graphically depicts the yields of different maturity bonds of the same credit quality and type. Yield is depicted on the vertical axis and maturity on the horizontal axis.

X axes is term to maturity. For example, 30y means that the bond will mature in 30 years.

Y axes is yield rate. For example, 5yr bond's yield is equal 4.5%.

In the above graph, the 3 month, 6 month, 2 year, 3 year, 5 year, 10 year, and 30 year are plotted on yield curve.

For the case there are plotted the 1 month, 3 month, 6 month, 2 year, 5 year, 10 year, and 30 year bond yield.

2. Describe the terms: increasing, decreasing, flat and inverted curves. For each of the cases, describe the relation between short term rates and long term rates.