What is a yield curve?

A yield curve is a graphical representation that shows the relationship between interest rates and the maturity dates of debt for a similar issuer, typically government bonds or other secure debt instruments. It illustrates how interest rates vary for different terms, ranging from short-term to long-term maturities.

The yield curve reflects investor expectations about future interest rates, economic growth, and inflation, which can influence their decisions regarding the duration of bonds they choose to invest in. It is crucial for understanding market conditions and assessing risk; a normal yield curve slopes upwards, indicating higher interest rates for longer maturities, while an inverted yield curve may signal an upcoming recession.

This concept is fundamentally different from other chart types mentioned. For instance, stock prices over time pertain to equity markets, economic growth trends relate to GDP and overall economic performance, and inflation rates are depicted in contexts that measure price level changes rather than interest rates. Hence, the selection that describes a yield curve accurately captures its essence in financial analysis.