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Euro area business cycle dating committee

Yield curves continually move all the time that the markets are open, reflecting the market's reaction to news.A further "stylized fact" is that yield curves tend to move in parallel (i.e., the yield curve shifts up and down as interest rate levels rise and fall).The opposite position (short-term interest rates higher than long-term) can also occur.For instance, in November 2004, the yield curve for UK Government bonds was partially inverted.The shape of the yield curve is influenced by supply and demand: for instance, if there is a large demand for long bonds, for instance from pension funds to match their fixed liabilities to pensioners, and not enough bonds in existence to meet this demand, then the yields on long bonds can be expected to be low, irrespective of market participants' views about future events.The yield curve may also be flat or hump-shaped, due to anticipated interest rates being steady, or short-term volatility outweighing long-term volatility.In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc. The curve shows the relation between the (level of the) interest rate (or cost of borrowing) and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. With other factors held equal, lenders will prefer to have funds at their disposal, rather than at the disposal of a third party.

Economists use the curves to understand economic conditions.

In addition, lenders may be concerned about future circumstances, e.g.

a potential default (or rising rates of inflation), so they demand higher interest rates on long-term loans than they demand on shorter-term loans to compensate for the increased risk.

More formal mathematical descriptions of this relation are often called the term structure of interest rates.

Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one on the right which is informally called "the yield curve".

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Negative liquidity premiums can also exist if long-term investors dominate the market, but the prevailing view is that a positive liquidity premium dominates, so only the anticipation of falling interest rates will cause an inverted yield curve.

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