A line plotting the yields of bonds that share a credit quality but differ in maturity, showing what the market charges for lending over different spans of time.
Published by Quintessentia Network Inc. · Updated 17 July 2026 · Sources & disclosures
Curve slope (a common summary) = long-maturity yield − short-maturity yield
What it is
The yield curve is a chart. Along the bottom sit maturities, from very short (a few months) to very long (decades). Up the side sits yield — the annualised return implied by a bond's current price if it is held to maturity and every payment is made as promised. Connect the dots and you get a curve. It is drawn for a single issuer or credit tier so that maturity is the only thing changing, most often government debt such as US Treasuries or Government of Canada bonds. The shape is the whole point: it shows whether lenders are demanding more or less compensation to tie their money up for longer.
Why it matters
The curve is one of the few places where the market states, in numbers, what it collectively expects about future interest rates. An upward slope (long yields above short) is the common shape, usually read as compensation for the extra uncertainty of a long wait. When short yields sit above long yields, the curve is inverted. Inversion has historically preceded US recessions often enough that economists watch it closely, but it is a historical correlate, not a forecast: an inversion has at times been followed by no recession at all, and where a downturn did follow, the gap has varied from months to around two years. The curve also anchors pricing across the economy, since mortgage, corporate and loan rates are commonly quoted as a spread over a point on it.
How it's calculated
It is plotted from observed market prices rather than derived from a single formula. Take the yields on one issuer's bonds at a set of standard maturities (say 3-month, 2-year, 10-year, 30-year), plot yield against maturity, and connect them. Because traded bonds do not exist at every exact maturity, official curves are fitted from the issues that do trade: the US Treasury publishes a daily par yield curve, and the Bank of Canada publishes zero-coupon curve estimates for Government of Canada bonds. Analysts often reduce the shape to a single spread, such as the 10-year yield minus the 2-year yield, which turns negative when that segment inverts.
Cross-border note. Canada and the US each have their own government curve, and the two can slope differently at the same moment because each reflects its own central bank policy path and bond supply. The US Treasury publishes a daily par yield curve built from quotes on recently auctioned Treasuries; the Bank of Canada publishes daily zero-coupon curve estimates for Government of Canada bills and bonds.
FAQ
Why would anyone accept a lower yield to lend for longer?
That is what an inverted curve means, and it looks odd at first. The usual reading is that buyers expect short-term interest rates to fall in future, so they may accept a long yield below what short bonds pay today rather than face reinvesting at lower rates later. Heavy demand for long, safe government bonds can push their yields down as well. An inversion is a statement about expectations — and expectations are often wrong.
Is the yield curve the same thing as the interest rate?
No. A central bank sets one very short-term policy rate. The yield curve is the market's pricing of many maturities at once, and only the shortest end tracks the policy rate closely. Longer points are set by buyers and sellers trading bonds, so they move on expectations about future policy, inflation, and how much extra yield lenders want for a long commitment.
If the curve moves, what happens to a bond that is already issued?
Its market price changes; its contracted payments do not. A bond's coupon and face value are fixed at issue. If yields at that maturity rise, the price of an existing bond falls, because a buyer will only take an older, lower-coupon bond at a discount steep enough to bring its return into line. That inverse link between price and yield is the core mechanic of bond pricing, and duration measures how sharply a given bond's price responds.