Normal Yield Curve

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What is the 'Normal Yield Curve'

The normal yield curve is 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".

BREAKING DOWN 'Normal Yield Curve'

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.

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RELATED FAQS
  1. Why are the term structure of interest rates indicative of future interest rates?

    Learn why economists believe the term structure for interest rates reflects investor expectations for future interest rates ... Read Answer >>
  2. How can the yield curve help me make investment decisions?

    Learn about the yield curve, and discover why this chart is an important economic indicator. How do Treasury bond yields ... Read Answer >>
  3. Below is an example of US Treasury yields for various maturities ...

    The correct answer is b. A normal yield curve chart shows long-term debt instruments having higher yields than short-term ... Read Answer >>
  4. What is the difference between term structure and a yield curve?

    Understand the difference between the term structure of interest rates and a yield curve, if any. Learn what the yield curve ... Read Answer >>
  5. What are the different formations of yield curves?

    Find out more about the yield curve and yield curve formations, what yield curves measure and the three main types of yield ... Read Answer >>
  6. Where on the Internet can I find yield curves over various periods?

    Find out where to locate reliable yield curve information on the Internet, including the U.S. Department of the Treasury ... Read Answer >>
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