What Is the Corporate Bond Yield Curve?
Corporations finance themselves by issuing bonds to creditors. In exchange, bondholders receive interest payments, until the loan principal is repaid at maturity. Use the yield curve to recognize the interest rate environment, before buying bonds.IdentificationThe corporate yield curve graphs average corporate bond interest rates on the y-axis, alongside maturity dates on the x-axis.FeaturesYield curves are generally upward sloping. Short-term bonds usually offer lower interest rates than longer-dated bonds. This happens because investors demand higher interest rates for the risks of tying up money for the long term.ConsiderationsThe yield curve may invert, prior to recession. At this point, nearer-term bonds offer higher interest rates than longer-dated bonds. Investors are then anticipating lower interest rates in the future. The Federal Reserve Board lowers interest rates to encourage investment amidst recession.RisksCorporate bonds are subject to interest rate risks. Interest rate
