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| Flat Yield Curve |
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A yield curve in which there is little difference between short-term and long-term rates for bonds of the same credit quality. This type of yield curve is often seen during transitions between normal and inverted curves.
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When short- and long-term bonds are offering equivalent yields, there is usually little benefit in holding the longer-term instruments - that is, the investor does not gain any excess compensation for the risks associated with holding longer-term securities. For example, a flat yield curve on U.S. Treasury would be one in which the yield on a two-year bond is 5% and the yield on a 30-year bond is 5.1%.
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