Positive yield curve

When long-term debt interest rates are higher than short-term debt rates (because of the increased risk involved with long-term debt security).

Normal Yield Curve

A yield curve that trends upward, indicating that the interest rates for long-term debt securities are higher than short-term debt securities. This is the regular way a yield curve trends because investors demand a higher return for the higher risk of tying up their capital in securities with longer maturities. It is less commonly called a positive yield curve. See also: Negative Yield Curve, Flat Yield Curve.

positive yield curve

The normal relationship between bond yields and maturity lengths that results from higher interest rates on long-term bonds than on short-term bonds. Positive refers to the slope of the curve drawn to depict this relationship. Compare negative yield curve. See also flat yield curve.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Positive yield curve.

A positive yield curve results when the yield on long-term US Treasury bonds is higher than the yield on on short-term Treasury bills.

You create the curve by plotting a graph with yield on the vertical axis and maturity date on the horizontal axis and connecting the dots. When the curve is positive the highest point is to the right.

In most periods, the yield curve is positive because investors demand more for tying up their money for a longer period.

When the reverse is true, and yields on short-term investments are higher than the yields on long-term investments, the curve is negative, or inverted.

That typically occurs if inflation spikes after a period of relatively stable growth or if the economic outlook is uncertain. The yield curve can also be flat, if the rates are essentially the same.