What is a yield curve?

A yield curve is a graph that illustrates the relationship between interest rates and the different maturities of debt securities, particularly government bonds. Typically, it plots the yield (or interest rate) on the vertical axis and the time to maturity on the horizontal axis. This graphical representation helps investors understand how the interest rates vary for bonds with different maturities, providing insight into future interest rate changes and the overall economic outlook.

The yield curve can take various shapes — upward sloping, downward sloping, or flat — each of which can indicate different economic conditions, such as expectations for growth or recession. An upward-sloping curve often suggests that investors expect stronger economic growth in the future, while a downward-sloping curve might indicate anticipated economic slowdown or recession.

This concept is integral to investment management as it aids investors in making decisions regarding bond investment strategies and assessing risk. Understanding the behavior of interest rates in relation to bond maturities is crucial for both fixed-income investments and broader economic assessments.

The other options do not accurately describe what a yield curve is. For instance, it is not a measure of corporate profitability, a type of investment fund, or a summary of economic growth. Each of those concepts pertains to different aspects of finance and economics that do not capture