{"id":14346,"date":"2026-05-27T07:41:35","date_gmt":"2026-05-27T07:41:35","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/yield-curve\/"},"modified":"2026-05-27T07:41:35","modified_gmt":"2026-05-27T07:41:35","slug":"yield-curve","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/yield-curve\/","title":{"rendered":"Yield Curve"},"content":{"rendered":"

A yield curve<\/a> is a graph that plots the interest rates (yield<\/a>s) of bonds<\/a> with the same credit quality across different maturities, from short-term (3 months) to long-term (30 years). It shows the relationship between time to maturity and yield, and is one of the most widely watched economic indicators.<\/p>\n

What Is the Yield Curve?<\/h2>\n

The most commonly cited yield curve is for government bonds<\/a> (US Treasury bonds or Indian government bonds). Each point on the curve represents the yield investors demand for lending money for that duration.<\/p>\n

In a normal economy, longer-term bonds have higher yields because:
\n– Investors demand compensation for the risk of locking in money for longer
\n– Inflation<\/a> and credit risk over longer periods are harder to predict<\/p>\n

Types of Yield Curves<\/h2>\n

**Normal (upward sloping)**: short-term rates lower than long-term rates; reflects expectations of future growth and moderate inflation. Typical during expansion.<\/p>\n

**Flat**: short-term and long-term yields are similar; often seen during transitions between economic phases.<\/p>\n

**Inverted**: short-term rates higher than long-term rates; signals that investors expect future economic weakness or rate cuts.<\/p>\n

**Steep**: long-term rates significantly higher than short-term; often seen early in economic recovery when rate cuts are in place.<\/p>\n

Why the Yield Curve Matters<\/h2>\n

– **Economic signal**: an inverted yield curve<\/a> has preceded nearly every US recession<\/a> since the 1960s
\n– **Bank profitability**: banks borrow short-term and lend long-term; a flat or inverted curve squeezes bank margins
\n– **Investor positioning**: the curve shape guides bond duration<\/a> decisions in fixed income portfolio<\/a>s
\n– **Monetary policy<\/a> signalling**: the shape reflects market expectations of future central bank actions<\/p>\n

Practical Example<\/h2>\n

In India, when RBI raised rates aggressively in 2022-23, short-term government bond yield<\/a>s (1-year) rose quickly while long-term yields (10-year) rose less steeply. The curve flattened, signalling that markets expected rates to eventually come down.<\/p>\n

Key Takeaways<\/h2>\n

– The yield curve plots bond yields across different maturities for a given credit quality
\n– A normal curve slopes upward; an inverted curve (short-term yields above long-term) signals recession risk
\n– The 10-year minus 2-year yield spread is the most watched yield curve indicator globally
\n– Flat or inverted curves reduce bank profitability and often precede economic slowdowns
\n– In India, the G-Sec yield curve (published by RBI and CCIL) is the reference for government bond pricing<\/p>\n","protected":false},"excerpt":{"rendered":"

A yield curve is a graph that plots the interest rates (yields) of bonds with the same credit quality across different maturities, from short-term (3 months) to long-term (30 years). It shows the relationship between time to maturity and yield, and is one of the most widely watched economic indicators. What Is the Yield Curve? […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14346","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"A yield curve is a graph that plots the interest rates (yields) of bonds with the same credit quality across different maturities, from short-term (3 months) to long-term (30 years). It shows the relationship between time to maturity and yield, and is one of the most widely watched economic indicators. What Is the Yield Curve?…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14346","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14346\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}