The yield curve is a line graph that illustrates the yield of treasury securities (T-bills, T-Notes, T-Bonds) for various maturities a specific point in time. The yield to maturity is plotted on the horizontal axis and the term to maturity is plotted on the vertical axis. The plot is generally derived from on-the-run treasury securities data using a cubic spline interpolation algorithm.
Fixed income investors use the curve for benchmarking and to determine where interest rates are headed. Equity investors often view the curve as a leading indicator of economic conditions. The curve normally slopes upward from left to right but is sometimes flat or inverted. An inverted yield curve occurs when short-term issues have higher yields than long-term issues -- this can be interpreted as a signal that rates are expected to decline and that the economy is expected to slow.
