Yield Curve

The yield curve shows the relationship between interest rates and time. The yield curve is displayed as a line on a graph, with time on the horizontal axis and interest rates on the vertical axis. The shape of the yield curve is considered a key indicator of current and future economic conditions. For example, in an economy that’s humming along nicely, the yield curve gently slopes up. This is because bond investors expect higher returns in exchange for the uncertainty associated with longer-term bonds. A steep yield curve--with short-term rates much lower than long-term rates--is often associated with an economy picking-up steam after a recession. With an inverted yield curve, the line is downward sloping because short-term interest rates are higher than long-term rates. An inverted yield curve is a meaningful indicator of pending economic stress or a recession. With a flat yield curve, interest rates are roughly the same for short and long--term maturities. A flat yield curve is often associated with uncertainty or confusion about the direction of the economy.

Why Retirees Should Listen Closely to Bill Gross

As the manager of the largest bond fund in the world and a founder of PIMCO, Bill Gross is a leading authority on all things related to yield.

Since retirement finances are fundamentally about generating...

Pimco’s Gross Describes a New Age of Risk

Pacific Investment Management Company (Pimco) founder and co-chief investment officer Bill Gross offered a revised view of the global investing landscape in a letter published on the company’s website. 

As the manager of the Pimco Total Return Fund, Gross’s 2011 investment decisions were driven in part by the “new normal” thesis. 

The new normal view...

Operation Twist and the Yield Curve

There is a great op-ed in Bloomberg by Caroline Baum that discusses the implications of QE2 and other recent asset purchases made by the Fed. Operation Twist refers to the last time the Fed tried (and failed) to manipulate the yield curve (the spread between the Fed's overnight rate and long term rates that are determined by the market) in 1961.