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What is a Flat Yield Curve?

Flat yield curve refers to a yield curve that reflects little or no disparity between short-term and long-term interest rates.

How Does a Flat Yield Curve Work?

A flat yield curve is essentially a horizontal line representing similar yields for short-term and long-term debt securities in the same credit category, as shown below:

Flat Yield Curve

Under these circumstances, for instance, a bond with a 30-year term would have virtually the same yield as a similarly-rated bond with only a five-year term.

Why Does a Flat Yield Curve Matter?

A flat yield curve indicates that there is no immediate benefit to investing in long-term securities over short-term securities since the yield on either is essentially the same.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.