Taxable Bonds
Yield Curve
As interest rates rise bond prices fall, and as interest rates fall bond prices rise. The yield curve depicts the difference in yields between similar bonds with long and short maturities. When short-term rates are lower than long-term rates, it is referred to as a normal (positive) yield curve. When short-term rates are higher than long-term rates, it is referred to as an inverted (negative) yield curve. When there is little to no difference in yields between short-term and long-term rates, it is called a flat yield curve. Investors who purchase long-term bonds accrue more risk; and hence, are compensated with higher yields. In this case, the yield curve is usually positive indicating higher yields for extended maturities.
Yield Curve Graph
A normal (Positive) yield curve occurs during economic expansion which can predict a rise in future interest rates.
An inverted (Negative) yield curve occurs during economic contraction which can predict a decline in future interest rates.