Types of yield curves
1, positive yield curve
2. Inverse yield curve
3. Flat income curve
4. Arch yield curve First, review the concept of yield.
The yield curve is a graph reflecting the relationship between bond yield and maturity. The horizontal axis represents the length of the bond term and the vertical axis represents the corresponding rate of return.
Its uses include:
1. Forecasting economic growth: The yield curve is usually used to predict future economic growth and inflation level. Generally speaking, the yield of long-term bonds is higher than that of short-term bonds. When the yield curve is reversed, it shows that the possibility of economic cycle turning is increasing. Therefore, the yield curve has become an important indicator to measure financial market sentiment and economic forecast.
2. Determine the timing of buying and selling bonds: investors can judge the timing of buying and selling bonds by analyzing the yield curve. When the yield curve shows an upward trend, the return on investment of short-term bonds is usually higher than that of long-term bonds, which is suitable for short-term investors. When the yield curve is in a downward trend, the return on investment of long-term bonds is usually higher than that of short-term bonds, which is suitable for long-term investors.
3. Measuring the impact of economic policies: The yield curve can be used to measure the impact of financial and monetary policies on the capital market. By observing the change of yield curve with time, we can understand the influence mode and effect of these policies, such as the influence of monetary policy on capital market.
4. Determine asset allocation: Fund managers and portfolio managers can use the yield curve to determine how to allocate assets to maximize returns. These institutions can get the best return on investment by understanding the bond market and rationally allocating their investment portfolios.
To sum up, the yield curve is an important tool to measure economic activities, predict market trends and asset allocation. It can help investors to better analyze and understand the market when making decisions, so as to formulate more effective investment strategies.