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Yield Curve

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A yield curve is a plot of the yields of all bonds of the same quality, from lowest to highest maturity. Typical yield curve is based on the yield-maturity relationship of default-free US Treasury securities. There are three basic configurations for a yield curve, depending on interest rate levels and the general economic conditions. A positive yield curve shows short-term interest rates are lower than long-term interest rates. A flat yield curve results when short-term and long-term interest rates are about the same. A negative yield curve is seen when short-term interest rates are higher than long-term interest rates. The yield curve (especially the negative yield curve) can be a helpful tool in in forecasting the future health of the economy.

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