What is the relationship between the time to maturity and the yield of a bond?
Curious about Maturity date
The relationship between the time to maturity and the yield of a bond is called the term structure of interest rates, or the yield curve. Typically, longerterm bonds have higher yields than shorterterm bonds, all else being equal. This is known as a normal yield curve.
One reason for this relationship is that longerterm bonds are riskier than shorterterm bonds because they are exposed to more uncertainty and market volatility over a longer period of time. As a result, investors demand a higher yield or return to compensate for that risk.
However, the yield curve can sometimes invert, where shortterm bonds have higher yields than longterm bonds. This can occur when investors believe that the economy is slowing down or that inflation will be low in the future. An inverted yield curve can be a signal of an impending recession, as it implies that investors are more concerned about the shortterm economic outlook than the longterm.