| Definition |
A graphical representation showing the relationship between interest rates (yields) and different bond maturities. |
The cost of borrowing money, expressed as a percentage, charged by lenders to borrowers. |
| Scope |
Represents multiple interest rates for bonds across various maturities (short-term to long-term). |
Represents a single rate applicable to a loan, deposit, or security at a given time. |
| Purpose |
Used to analyze economic expectations, inflation, and future interest rate movements. |
Determines the cost of borrowing and the return on lending/investment. |
| Types |
Normal (upward sloping), Inverted (downward sloping), Flat, Humped. |
Nominal rate, real interest rate, fixed rate, floating rate. |
| Economic Indicator |
Considered a key indicator of economic health and recession predictions. |
Reflects current monetary policy and market conditions. |
| Components |
Includes yields on government bonds of various maturities (e.g., 3 months to 30 years). |
Includes base rates like the central bank’s policy rate, lending rates, deposit rates. |
| Influencing Factors |
Expectations about inflation, economic growth, central bank policies, market demand for bonds. |
Monetary policy, inflation, credit risk, demand and supply of funds. |
| Measurement |
Plotted as yield (interest rate) on vertical axis against maturity on horizontal axis. |
Expressed as an annual percentage rate (APR) or effective interest rate. |
| Usage in Finance |
Helps investors decide on bond investments, manage risk, and anticipate interest rate changes. |
Used for loan agreements, savings products, bond coupon rates, and overall cost of capital. |
| Relationship |
Yield curve is made up of multiple interest rates for different maturities. |
Interest rates are individual points that form the yield curve. |
| Examples |
U.S. Treasury yield curve, Indian government securities yield curve. |
Federal Funds Rate, Mortgage Rate, Personal Loan Interest Rate. |
Yield Curve vs Interest Rate