Yield curve

The relationship between the yield on government bonds and their maturity, plotted from overnight out to thirty years.

A curve where the ten-year yields 7.2% and the two-year 6.6% has a 60 basis point slope.

Its shape carries information about expected policy rates and about the compensation investors demand for holding longer maturities. A steep curve usually reflects expected growth or expected inflation; a flat one, expected slowdown.

Every corporate discount rate starts here, which is why a valuation built in a low-rate year and not revisited is quietly wrong.

Two practical uses for a company analyst. The long end sets the risk-free rate in every cost of equity, so a valuation built when the ten-year yielded 6% and not revisited when it yields 7.5% is quietly wrong by a percentage point of discount rate. And the slope prices the cycle: a steepening curve usually means growth or inflation is expected, a flattening one the opposite.