Glossary
The yield curve (represented below) is a representation of the different rates of interest earned for different maturities. Different currencies and different providers within a given currency will therefore have different yield curves, according to their credit ratings in particular. The high credit rating enjoyed by governments is an explanation of why their yield curve (in green below) is lower than the money market and swap curves (in red and orange). The money market curve represents interest rates for short terms of investment (up to one year) and is based on inter-bank lending rates. The swap curve represents the interest rates offered between parties for longer time periods (one year and above).


Usually, as in the example above, the yield curve is upward sloping, i.e. longer maturities offer higher rates of interest, due to the higher risk associated with longer investments.

However, in periods of high inflation, short term interest rates will usually be increased to stem inflationary pressures on the economy. As a result the yield curve could become downward-sloping (inverted) in such cases.

The perception of future interest rates also affects the shape of the yield curve. If interest rates are expected to go up for example, the steepness of the yield curve will increase accordingly.

A common measure of the money market curve in the UK is published by the British Bankers Association (BBA), called Libor. This is an average of the interbank rates offered on that day between UK banks for different maturities. An equivalent for Euro interest rates is the Euribor benchmark.