A graph showing the relationship between interest rates and time to maturity for bonds of similar credit quality, typically government bonds. The curve's shape reflects market expectations about future interest rates and economic conditions.
From Old English 'gieldan' (to pay) and Latin 'curvus' (bent). The financial concept developed as bond markets evolved, with traders plotting yields against maturities to visualize the time value of money and interest rate expectations.
The yield curve is like a crystal ball for the economy - when it inverts (short-term rates higher than long-term), it has predicted almost every recession since the 1960s! This happens because investors demand higher compensation for short-term uncertainty than long-term stability, signaling economic trouble ahead.
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