What is the 'Flat Yield Curve'
The flat yield curve is a yield curve in which there is little difference between short-term and long-term rates for bonds of the same credit quality. This type of yield curve is often seen during transitions between normal and inverted curves. The difference between a flat yield curve and a normal yield curve is a normal yield curve slopes upward.
BREAKING DOWN 'Flat Yield Curve'
When short and long-term bonds offer equivalent yields, there is usually little benefit in holding the longer-term instrument; the investor does not gain any excess compensation for the risks associated with holding longer-term securities. If the yield curve is flattening, it indicates the yield spread between long term and short term is decreasing. For example, a flat yield curve on U.S. Treasury bonds is one in which the yield on a two-year bond is 5% and the yield on a 30-year bond is 5.1%.