Yield Curves Show Yields Across Maturities, Not Prices

Summary

In standard financial usage, a yield curve plots yields against the maturities of interest rate instruments. The yields are derived from instrument prices, but the curve’s horizontal dimension is time to maturity, not price.

The note distinguishes this usage from discussions of how an instrument’s price changes when its yield changes. Duration and convexity describe price sensitivity to rate changes, which can make a price-versus-yield relationship relevant in that context. That relationship does not redefine the usual meaning of “yield curve.” The explanation is a terminology clarification; it does not cover curve construction, yield conventions, or the interpretation of curve shapes.

Key ideas

• A yield curve conventionally maps yields to instrument maturities.
• Instrument prices are used to derive the yields plotted on the curve.
• Duration and convexity concern price sensitivity to yield changes.
• Price-versus-yield discussions are distinct from the standard yield-curve definition.

Tags

# Basic questions on the yield curve


# Basic questions on the yield curve












When people say "yield curve", do they mean yield/time curve, or yield/price curve?

It seems that most of the time, people refer to yield/time curve, as wikipedia suggests. Though sometimes, people seem to use this term referring to yield/price curve, often when talking about the convexity, like here in investopedia.

What is the right definition?

## Answer by GWD (score 1, accepted)

https://quant.stackexchange.com/a/16978

Usually yield/time is the standard context for definition of a yield curve, with yields being derived from prices (of interest rate instruments) for certain maturities (times). The investopedia article you are referencing is all about the yield/price connection (since duration and convexity represent first and second order "price" sensitivity measures to "rate" changes) - so that is why you shouldn't view that article as the default context for yield curve lingo.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.