flat yield curve

Flattening of the Yield Curve

A change in the yield curve for bonds in which the yield spread on short-term and long-term Treasury bonds decreases. That is, a flattening of the yield curve occurs when either the yield increases for short-term bonds and decreases for long-term bonds, or vice versa. It is important to note that the yield curve is a graphic representation, plotting yield against maturity.

flat yield curve

At a particular time, similar yields on bonds of similar risk at all maturity lengths. During a period of a flat yield curve an investor would receive approximately the same yield on a long-term bond as he or she would on a short-term bond, although the former would be subject to greater price fluctuations.