It’s easy to conceptualize a simple graph that weighs yield against maturity, but plotting the yield curve can prove to be quite complex. An accurate calculation depends on finding securities with different maturity dates that are otherwise equivalent — issued in the same currency and with the same levels of risk.
The U.S. Treasury issues an array of similar securities with different maturities, making the Treasury yield curve a reliable source for U.S. interest rates. After each market day, the Treasury reports the yield percentages for instruments of one, three, and six months, as well as those for one, two, three, five, seven, 10, 20, and 30 years.
Most days, it is not possible to find securities that mature at these exact future intervals. The Treasury uses complex mathematical modeling to calculate the specific yields based on arithmetic averages of the trading prices for the most recently issued securities. Based on the precise values the Treasury calculates and reports on a daily basis, it’s easy to visualize the current yield curve or even draw its basic shape on your own.
Other yield curves
Economists also calculate yield curves for non-Treasury bonds, comparing yields on securities of similar types — such as corporate or municipal bonds — that have received equal credit ratings. The yield curve on corporate bonds is higher than the Treasury yield curve, and the lower the credit rating, the greater the spread between the yield curves tends to be. This reflects the premium offered to investors who are willing to take a chance on lower-rated, riskier bonds.
