Flat Yield Curve
What It Is:
Flat yield curve refers to a yield curve which reflects little or no disparity between short-term and long-term interest rates.
How It Works/Example:
A flat yield curve is essentially a horizontal line representing similar yields for short-term and long-term debt securities in the same credit category, as shown below:
Under these circumstances, for instance, a bond with a 30-year term would have virtually the same yield as a similarly-rated bond with only a five-year term.
Why It Matters:
A flat yield curve indicates that there is no immediate benefit to investing in long-term securities over short-term securities since the yield on either is essentially the same.
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Cached on May 21, 2012, 5:04 pm