Normal Yield Curve
Barron's Banking Dictionary:
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Normal Yield Curve
Graph showing longer-maturity debt instruments paying out higher yields than short-term debt instruments; also known as a Positive Yield Curve.
Investopedia Financial Dictionary:
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Normal Yield Curve
A yield curve in which short-term debt instruments have a lower yield than long-term debt instruments of the same credit quality. This gives the yield curve an upward slope. This is the most often seen yield curve shape.
Sometimes referred to as "positive yield curve".
Investopedia Says:
This yield curve is considered "normal" because the market usually expects more compensation for greater risk. Longer-term bonds are exposed to more risks such as changes in interest rates and an increased exposure to potential defaults. Also, investing money for a long period of time means an investor is unable to use the money in other ways, so the investor is compensated for this through the time value of money component of the yield.
Related Links:
Find out what happens when short-term interest rates exceed long-term rates. The Impact Of An Inverted Yield Curve
Learn how to generate higher returns while keeping the same risk profile. Adding Alpha Without Adding Risk
This measure can shed light on future economic activity, inflation levels and interest rates. Bond Yield Curve Holds Predictive Powers
Investing in bonds - What are they, and do they belong in your portfolio? Bond Basics Tutorial
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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