Interest rate curve - Financial definition
Concise definition of the term interest rate curve
An interest rate curve is a graph that plots interest rates of similar fixed-income instruments with differing maturities across time. The curve creates a visual representation of the term structure of interest rates.
Comprehensive definition of the term interest rate curve
The normal shape of an interest rate curve shows higher interest rates the longer the maturities are.
This comes from the fact that the risk premium, which is one of the components of an interest rate, tends to be more important the further away the maturity is.
This comes from the fact that the risk premium, which is one of the components of an interest rate, tends to be more important the further away the maturity is.
An interest rate curve, however, can, under certain market conditions, be flat or even inverted.