The Living Yield Curve at SmartMoney

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Published September 29, 2000 | A

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In the absence of economic disruptions, investors who risk their money for longer periods expect to get a bigger reward — in the form of higher interest — than those who risk their money for shorter time periods. Thus, as maturities lengthen, interest rates get progressively higher and the curve goes up.
December 1984, marked the middle of the longest postwar expansion. As the GDP chart above shows, growth rates were in a steady quarterly range of 2% to 5%. The Russell 3000 (the broadest market index), meanwhile, posted strong gains for the next two years. This kind of curve is most closely associated with the middle, salad days of an economic and stock market expansion. When the curve is normal, economists and traders rest much easier.
Back to Applet
Steep Curve
Date: April 1992
Typically the yield on 30-year Treasury bonds is three percentage points above the yield on three-month Treasury bills. When it gets wider than that
— and the slope of the yield curve increases sharply — long-term bond holders are sending a message that they think the economy will improve quickly in the future.
This shape is typical at the beginning of an economic expansion, just after the end of a recession. At that point, economic stagnation will have depressed short-term interest rates, but once the demand for capital (and the

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