What is a yield curve? What interest rates over time can tell you
By SendPay Business · · 2 min read
A yield curve is a line showing the interest rate a government pays to borrow for different lengths of time, from a few months to 30 years. Its shape is one of the most watched signals of where investors think the economy and interest rates are heading.
The three main shapes
- Normal: long-term rates are higher than short-term ones, as lenders want more for tying money up longer.
- Flat: short and long rates are about the same, often when the outlook is uncertain.
- Inverted: short-term rates are higher than long-term ones, often when markets expect rate cuts ahead.
Why an inverted curve gets attention
In the US, an inverted curve, often measured by the gap between 2-year and 10-year Treasury yields, has come before many past recessions. It is a warning sign rather than a sure forecast, and the timing between inversion and any downturn has varied widely.
Why currency markets watch it
The short end of the curve moves closely with central bank rates. Differences in yields between countries can shift money between currencies and move exchange rates.
Where SendPay fits
SendPay platforms let customers hold GBP, EUR and USD and exchange between them at a fee the platform owner sets, powered by licensed partners. SendPay doesn't offer trading.
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Build my platform →Questions people ask
How do I work out a bond's yield?
Current yield and yield to maturity from the coupon and price, free.
Bond yield calculator →How do I check if a yield curve is inverted?
Type the yields into the free calculator to draw the curve and see the 2-year to 10-year gap.
Yield curve calculator →What is a central bank base rate?
The rate a central bank sets that steers borrowing costs.
Base rates →How do interest rates affect exchange rates?
Higher rates can attract money into a currency and push it up.
Interest rates and FX →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.