What information does a yield curve provide?

A yield curve is a graphical representation that shows the relationship between interest rates and the maturities of debt securities, particularly government bonds. The primary information provided by the yield curve is related to future interest rate changes and economic expectations.

When the yield curve is upward sloping, it typically indicates that investors expect the economy to grow and interest rates to rise in the future. Conversely, an inverted yield curve, where shorter-term interest rates are higher than long-term rates, can signal a potential economic slowdown or recession. This predictive aspect makes the yield curve a crucial tool for investors and economists when analyzing market trends and making decisions related to economic forecasts.

The yield curve does not inherently provide insights into the average duration of bonds, predict stock performance, or determine the total value of all bonds in circulation. Instead, it focuses primarily on expectations around interest rates and economic conditions, establishing its importance in the realm of debt and money markets.