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Term structures


  • The term structure of interest rates is graphed as though each coupon payment of a non callable fixed-income security were a zero-coupon bond that “matures” on the coupon payment date
  • The yield curve describes the yield differential among treasury issues of differing maturities
  • The Yield Curve is the graph created by putting term to maturity on the X axis, YTM on the Y axis and then plotting the yield at each maturity
    • Upward sloping: This is the most persistent shape historically when short-term interest rates and inflation are low
    • Downward sloping ( Declining): This occurs at peaks in the short-term interest rate cycle, when inflation is expected to decrease in the future
    • Flat: This shape is evident during periods of interest rates transitions
    • Humped: This occurs when rates are transitioning or perhaps market participants are attracted in large numbers to particular maturity segment of the market, thereby creating the hump


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