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Understanding a flattening yield curve

A yield curve is a graph that shows the relationship between yields and maturity dates for a given time. Under normal circumstances, the longer it takes for a CD, bond or other investment to mature, the greater the yield. When economic forces cause a shorter maturity to produce a greater yield than a long maturity, the yield curve is said to be inverted.

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The charts below illustrate a yield curve that is flattening. Yields for short-term maturities, such as the one-year and five-year Treasuries, are rising faster than the yield for the 10-year Treasury. In fact, in this example, the yield for the 10-year is dropping over time and that makes the flattening yield curve even more pronounced.

 
-- Posted: June 17, 2005
   

 

 
 

 

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