Economy · General financial education

Yield curve as an idea

A yield curve shows how the market yield on debt securities relates to the time left until maturity. The ECB publishes curves of this kind for the euro area.

In more detail

The ECB estimates zero-coupon curves from fixed and zero-coupon euro government bonds of euro area central governments, with residual maturities from three months to 30 years. One curve uses only AAA-rated bonds, the other uses all of those government bonds. The gap reflects different credit default risk. The curve is a daily estimate, not a Finmon forecast.

Background

Read next to bonds, interest and inflation: the shape can change. A point on the curve is a market yield for a maturity, not a statement of what your account will pay next year.

An example

On one day the estimated yield for short residual maturities sits below the yield for long ones. On another day the gap is smaller or the order differs. Both are snapshots of the ECB method.

A common misconception

The yield curve says what rate my bank must pay me next year.

It describes market yields on selected government bonds by residual maturity. An account rate is a different contract.

Source: ECB · Euro area yield curves. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.