Yield Curve Risk

Yield Curve Risk
The risk of experiencing an adverse shift in market interest rates associated with investing in a fixed income instrument. The risk is associated with either a flattening or steepening of the yield curve, which is a result of changing yields among comparable bonds with different maturities.

When market yields change, this will impact the price of a fixed-income instrument. When market interest rates, or yields, increase, the price of a bond will decrease and vice versa.

When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond will change accordingly. If the bond is a short-term bond maturing in three years and the three-year yield decreases, the price of this bond will increase.

If the yield curve steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.


Investment dictionary. . 2012.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • yield curve risk — The risk to a holder of financial instruments that a change in prevailing interest rates will not affect the prices or yields of the same instruments in exactly equal amounts for each available term. For example, an increase in prevailing… …   Financial and business terms

  • yield curve twist — A phrase used to describe changes in prevailing interest rates that change the shape/slope of the yield curve. For example, a small increase in short term rates and a large increase in lon term rates that occur at the same time. A manifestation… …   Financial and business terms

  • yield curve twist risk — See yield curve risk. American Banker Glossary …   Financial and business terms

  • Yield curve — This article is about yield curves as used in finance. For the term s use in physics, see Yield curve (physics). Not to be confused with Yield curve spread – see Z spread. The US dollar yield curve as of February 9, 2005. The curve has a typical… …   Wikipedia

  • yield curve — A chart in which the yield level is plot on the vertical axis and the term to maturity of debt instruments of similar creditworthiness is plotted n the horizontal axis. The yield curve is positive when long term rates are higher than short term… …   Financial and business terms

  • Yield curve — The graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of the yield curve (short term rates… …   Financial and business terms

  • Normal Yield Curve — A yield curve in which short term debt instruments have a lower yield than long term debt instruments of the same credit quality. This gives the yield curve an upward slope. This is the most often seen yield curve shape. Sometimes referred to as… …   Investment dictionary

  • inverted yield curve — See yield curve slope. American Banker Glossary When short term interest rates are higher than long term rates. Antithesis of positive yield curve. Bloomberg Financial Dictionary * * *    A chart pattern that shows yields on short term securities …   Financial and business terms

  • Normal Yield Curve —    A chart illustrating that yields on long term securities are at higher rates than the rates on short term securities, to reflect the extra risk of holding them for a longer period. Also known as a positive yield curve. The opposite of an… …   Financial and business terms

  • positive yield curve — When long term debt interest rates are higher than short term debt rates (because of the increased risk involved with long term debt security). Bloomberg Financial Dictionary …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”