Flat Yield Curve
A flat yield curve is a type of yield curve in which the interest rates across all maturities are nearly the same. This is in contrast to a normal yield curve, which typically slopes upwards, indicating that longer-term investments have higher yields than shorter-term investments. A flat yield curve can be seen as a sign of economic uncertainty, as investors are not willing to take on additional risk for higher returns. It can also be seen as a sign of a slowing economy, as investors are not expecting higher returns in the future.
History of the Term
The term “flat yield curve” was first used in the early 1980s, when the Federal Reserve began to raise interest rates in an effort to combat inflation. This caused the yield curve to flatten, as investors were not willing to take on additional risk for higher returns. Since then, the term has been used to describe any situation in which the yield curve is flat or nearly flat.
Comparisons
| Type of Yield Curve | Interest Rates |
|---|---|
| Normal | Long-term investments have higher yields than short-term investments |
| Flat | Interest rates across all maturities are nearly the same |
Summary
A flat yield curve is a type of yield curve in which the interest rates across all maturities are nearly the same. This is in contrast to a normal yield curve, which typically slopes upwards, indicating that longer-term investments have higher yields than shorter-term investments. A flat yield curve can be seen as a sign of economic uncertainty, as investors are not willing to take on additional risk for higher returns. For more information about this term, you can visit websites such as Investopedia, The Balance, and Bloomberg.
See Also
- Yield Curve
- Inflation
- Interest Rates
- Bond Yields
- Treasury Yields
- Credit Spreads
- Risk Premium
- Monetary Policy
- Economic Growth
- Recession
