This Element is an excerpt from The ETF Trend Following Playbook: Profiting from Trends in Bull or Bear Markets with Exchange Traded Funds (ISBN: 9780137029013) by Tom Lydon. Available in print and digital formats.
The yield curve demystified: what it is, why it matters, and how to make the most of it.
Why is understanding the yield curve important to investors? It can be a good leading indicator of economic activity, suggesting where investors think the economy is headed. It plots the interest rates, at a set point in time, of bonds with equal credit quality but differing maturity dates. It’s primarily used to predict changes in economic output and growth.