The yield curve is one of the most important concepts used by economists and fixed income analysts when it comes to analyzing bonds, to get a good grasp of conditions in the financial markets and to weed out trading possibilities. It is basically the relationship expressed on a graph between the interest rates and time to maturity of a given debt.
Mathematically speaking, the yield curve is a function that is in terms of the time to maturity and it has to be for bonds with equivalent credit quality and expressed in a given currency.
The shape of the yield curve is considerably important for getting an idea about the trend of interest rate changes in the future and economic activity to come. The curve is usually asymptotically upward sloping with time.
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