Normal Yield Curve
A yield curve in which short-term debt instruments have a lower yield than long-term debt instruments of the same credit quality. This gives the yield curve an upward slope. This is the most often seen yield curve shape.
Sometimes referred to as "positive yield curve". Investopedia Says:
This yield curve is considered "normal" because the market usually expects more compensation for greater risk. Longer-term bonds are exposed to more risks such as changes in interest rates and an increased exposure to potential defaults. Also, investing money for a long period of time means an investor is unable to use the money in other ways, so the investor is compensated for this through the time value of money component of the yield. Related Terms:
Default
Default Risk
Flat Yield Curve
Interest Rate
Inverted Yield Curve
Nominal Yield
Time Value of Money
Yield
Yield Curve
Yield Spread |