A yield curve is the set of all possible interest rates or yields over time. There are many options for the shape of a yield curve, ranging from one to five-year notes to ten-year bonds. It can also break down into two parts: a short and long end. The abrupt end refers to the most current maturities in securities offered; the long lots refer to securities with the most extended maturity dates. Below are conditions for yield curves in their specific location.
Horizontal Curve, or Zero Curve
It states that the yields are all the same. The Curve is seen in coupon-bearing debt securities as it describes a yield curve without any difference between different maturities
Vertical Curve or Zero Line
It proclaims that the yields are all the same, but there is no relationship between the yield levels of different maturities. The Curve is seen in non-yield-bearing debt securities such as stocks or bonds that pay dividends and derive their price from income.
Inverted Curve
An inverted curve means that short-term interest rates are higher than long-term. It is depicted by rates decreasing as the maturity lengthens. It can also be thought of as the shape of a standard yield curve when short-term interest rates are higher than long-term interest rates.
Level Curve
They would expect this Curve if short rates were higher than long rates and a loan had a fixed rate for a specific term. The rate does not change during the period. The Curve gives the idea to yield expectations and whether there is an air of complacency about low-interest rates throughout markets. It is spotted in non-yield-bearing debt securities such as stocks or bonds that pay dividends and derive their price from the income.
Cu-sped Curve
This Curve pronounces that short-rate levels are the lowest and increase more gently as the maturity lengthens. This Curve reflects that short-term interest rates are usually lower than long-term interest rates, thus illustrating the risk premium of lending for more extended periods. It is identified in several different securities with fixed payment dates, such as annuities and revenue bonds.