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Trends & Analysis
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PepsiCo posts earnings beat, but misses on sales

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Crude oil spikes after US inventories data

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Risks on the horizon for the S&P 500?

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GBP/USD retreats after hitting 1-month high

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US dollar recovers from last week’s losses

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Should you own Meta Platforms or Alphabet?

Trends & Analysis
News

PepsiCo posts earnings beat, but misses on sales

News

Crude oil spikes after US inventories data

News

Risks on the horizon for the S&P 500?

News

GBP/USD retreats after hitting 1-month high

News

US dollar recovers from last week’s losses

News

Should you own Meta Platforms or Alphabet?

Yield curve definition

The yield curve is a chart plotting the price of a debt security such as a bond for multiple maturity dates. Similar curves can be plotted for forwards or futures (known as forward curves) but a yield curve specifically refers to a chart plotted for a bond. Movements in the yield curve are important economic indicators, especially for government-issued securities such as treasuries or gilts.

 

Plotting the yield curve

The yield curve is plotted by taking a range of bonds with the same credit rating, usually also the same issuer, but multiple expiry dates. For example, if you took the 3 month, 1 year, 5 year and 10 year treasury bills, you would be able to plot a yield curve for US government debt. This would show the market’s attitude to the long-term creditworthiness of the issuer, and any expected changes.

 

Most yield curves will show an upward slope, with the longest-dated instruments having the highest yields. Short term debt involves less risk for the bondholder, as there is a shorter time in which market conditions can deteriorate or the bonder could default. Longer-term holdings are exposed to both of these risks but also the risk of an increase in interest rates, and so investors must be recompensed with extra yield. The higher the price of a bond, the lower its yield, so bond yields are often used as a proxy for the attractiveness of issuer debt to investors. Generally, when bond yields decline, investors are rotating into debt holdings, and when they increase, they are either selling bonds or interest rates are rising.

Start trading with ADSS

ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.

 

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