Curve magazine dating

The yield curve function Y is actually only known with certainty for a few specific maturity dates, while the other maturities are calculated by interpolation (see Construction of the full yield curve from market data below).Yield curves are usually upward sloping asymptotically: the longer the maturity, the higher the yield, with diminishing marginal increases (that is, as one moves to the right, the curve flattens out).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.Investing for a period of time t gives a yield Y(t).This function Y is called the yield curve, and it is often, but not always, an increasing function of t.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.

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.In general the percentage per year that can be earned is dependent on the length of time that the money is invested.For example, a bank may offer a "savings rate" higher than the normal checking account rate if the customer is prepared to leave money untouched for five years.

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