The recent upheavals in the Debt market have left the investors puzzled and frightened about the debt markets. Let us understand some of the basic concept of debt markets.
What is a Yield Curve?
Interest rates typically vary with maturity.
The graph or figure which depicts the yield on bonds of the same credit quality and liquidity against maturity is called a Yield Curve.
Ideally, yield curve should be plotted for bonds that are alike in all respects other than the maturity; but this is extremely difficult in practice. Bonds that have similar risks of default may be different in coupon rates, options etc.