Yield Curve and Bond Basics

Yield Curve also called Term Structure of Interest Rates for a bond issuer, the structure of yields for bonds with Woman Doing Calculationsdifferent terms to maturity (but no other differences) is called Term Structure of Interest Rates.

The relationship between and yield on a similar risk class of securities is called the Yield Curve. The relationship represents the time value of money  showing that people would demand a positive rate of return on the money they are willing to part today for a payback into the future. It also shows that a Rupee payable in the future is worth less today because of the relationship between time and money. A yield curve can be positive, neutral or flat.A positive yield curve, which is most natural, is when the slope of the curve is positive, i.e. the yield at the longer end is higher than at the shorter end of the time axis. This result as people demand higher compensation for parting their money for a longer time into the future. A neutral yield curve is that which has a zero slope, i.e. is flat across time. Continue reading “Yield Curve and Bond Basics”