The yield curve risk is how your portfolio will react with different exposures based on how the yield curve shifts.

  • Investors portfolios tend to move in a parallel shift on the yield curve. This happens when all maturities on the yield curve move by an equal amount. The yield curve encompasses all maturities in the fixed income market. In a parallel shift, the investor would see an increase or decrease in all maturities by, for example, 25 basis points.
  • In the real world, however, the yield curve does not move this way. The curve tends to steepen, or yield an increase in the long end of the curve compared to shorter issues. The curve can also flatten,with yield on the long end decreasing at a faster rate than at the short end of the curve.
  • Because any measure of interest-rate risk assumes an equal amount of basis point moves on the yield curve, anything will be an approximation of how an investor's portfolio will react. The risk involved here is the degree to which this approximation will not match of the actual yield curve movement.


Credit Risk

Related Articles
  1. Investing

    Trade Bond ETFs Using Yield Curves

    Different types of yield curves provide important insights for trading bond-based securities.
  2. Investing

    Yield Curve

    Learn more about how this curve is used to predict changes in economic output and growth.
  3. Investing

    Understanding Term Structure of Interest Rates

    The term structure of interest rates is a common method of valuing bonds.
  4. Insights

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  5. Investing

    The Impact of an Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  6. Investing

    Understanding the Inverted Yield Curve

    An inverted yield curve occurs during the rare times when short-term interest rates are higher than long-term interest rates.
  7. Investing

    Goldman Sachs on the Real Cost of a Fed Hike (GS)

    Learn why Goldman Sachs believes that aggressive Fed tightening would lead to $1 trillion in bond market losses, and why other market models disagree with the estimate.
  8. Investing

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  9. Insights

    What is an Indifference Curve?

    An indifference curve determines the combinations of two goods that will provide equal satisfaction.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center