What Does a “Normal” Yield Curve Look Like?

I was curious to see if there’s a “normal bend” to the yield curve besides that it ought to be positive. I averaged all the yields on several points on the yield curve with data going back to 1985.

Those are the points in blue. I set the 3-month yield to 0% so you can see how the rest of the curve relates to that.

I added the points for the current yield curve. Those are the points in red.

I was a little surprised that the 20-year yields were slightly higher than the 30-year yields. Perhaps there’s a liquidity effect.

Actually, to get a better sense of how out-of-the-ordinary the current curve is, I could have set the 30-year yield to 0%. Then we could see how the rest of the curve related to that.

The point is that current short-term rates are very low and the yield curve doesn’t anticipate them rising anytime soon.

Posted by on November 15th, 2010 at 8:35 pm


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