Term Structure Of Interest Rates

AAA

DEFINITION of 'Term Structure Of Interest Rates'

The relationship between interest rates or bond yields and different terms or maturities. The term structure of interest rates is also known as a yield curve and it plays a central role in an economy. The term structure reflects expectations of market participants about future changes in interest rates and their assessment of monetary policy conditions.

INVESTOPEDIA EXPLAINS 'Term Structure Of Interest Rates'

In general terms, yields increase in line with maturity, giving rise to an upward sloping yield curve or a "normal yield curve." One basic explanation for this phenomenon is that lenders demand higher interest rates for longer-term loans as compensation for the greater risk associated with them, in comparison to short-term loans. Occasionally, long-term yields may fall below short-term yields, creating an "inverted yield curve" that is generally regarded as a harbinger of recession.

RELATED TERMS
  1. Spot Rate

    The price that is quoted for immediate settlement on a commodity, ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  3. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  4. Discounted Cash Flow - DCF

    A valuation method used to estimate the attractiveness of an ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Liquidity Preference Theory

    The idea that investors demand a premium for securities with ...
Related Articles
  1. Forces Behind Interest Rates
    Economics

    Forces Behind Interest Rates

  2. Contango Vs. Normal Backwardation
    Options & Futures

    Contango Vs. Normal Backwardation

  3. What Investors Should Know About Interest ...
    Investing Basics

    What Investors Should Know About Interest ...

  4. Interest Rates And Your Bond Investments
    Investing Basics

    Interest Rates And Your Bond Investments

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center