What is the Yield Curve?
Yield Curve
Forex Trading Glossary
Quick Answer: The yield curve plots interest rates across maturities; its slope reveals growth expectations, inflation pressures, and looming recession risks.
What is the Yield Curve?
The yield curve plots interest rates across different maturities of government bonds. Its shape reflects growth and inflation expectations, making it a crucial signal for currency traders.
Common Yield Curve Shapes
- Normal curve: Longer-term yields sit above short-term rates, implying healthy growth.
- Flat curve: Minimal spread suggests uncertainty or an upcoming transition.
- Inverted curve: Short-term rates exceed long-term yields—often a recession warning.
Track the Spread
Watch key spreads like 2s/10s or 3m/10y. Sharp moves ripple through FX as traders reposition for policy shifts.
Using the Yield Curve in Forex
- Compare curves between countries to anticipate capital flows.
- Align trades with the direction of yield spread differentials.
- Monitor how the curve reacts to macro releases and central bank messaging.
- Blend curve analysis with bond futures positioning for confirmation.
Related Terms
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