What is the Yield Curve

to understand the yield curve first you have to understand bonds a bond is a chunk of money an investor lends to a company or a government with the agreement that over time they'll be repaid with interest the interest or the amount of money the investor earns annually per 100 of bonds is called the yield the yield curve measures the yields of all the bonds the treasury is selling over a long period of time the x-axis shows when the bonds will be repaid how many months years or decades and the y-axis measures the yield or the interest that bondholders receive annually here's what a normal healthy yield curve looks like this means the economy is expanding you can see that when the market is healthy longer term bonds trade at a higher yield and shorter term bonds traded a lower one so in a healthy yield curve a two-year bond might yield three percent annually and a ten-year bond might get four percent investors and economists look at the way the curve bends to predict the health of the economy so what causes the yield curve to change shape and invert