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The Yield Curve in Depth

How the Treasury yield curve is built, what its shape contains, the ways it moves, what the record of inversions shows, and why two portfolios with the same duration can react differently when the curve changes shape.

Lesson 3 of 9 · 13 min read · Advanced · Members · Last reviewed October 2026

The short version

The Treasury publishes a curve of par yields each trading day, built from price quotations on its most recently auctioned securities. The curve's shape combines what investors expect short-term rates to do with a term premium for holding long bonds, and the two can't be separated by looking. The curve moves in level, in slope, and in shape. Forward rates worked out from it are break-even rates, and they aren't forecasts. For a bond investor, the curve adds a source of return, called roll-down, and a source of risk that duration doesn't measure.

By the end of this lesson, you'll be able to

  • Describe how the Treasury yield curve is constructed and what a par yield is
  • Explain how expectations and the term premium shape the curve, and calculate a forward rate
  • Explain why portfolios with equal duration can respond differently to a change in the curve's slope

Why this matters

Duration and Convexity treated the interest rate as a single number that goes up or down. There isn't one. There's a rate for three months, another for two years, another for thirty, and they don't move together. Duration and the Yield Curve introduced the curve's three basic shapes. This lesson looks at where the published curve comes from, what its shape does and doesn't tell you, and what its movements do to a bond portfolio.

What the curve is made of

The US Treasury publishes an official yield curve every trading day. Its inputs are bid-side price quotations for the most recently auctioned Treasury bills, notes, and bonds, gathered by the Federal Reserve Bank of New York at or near 3:30 in the afternoon. These are indicative quotations, and they aren't records of actual trades. A mathematical method then fills in a smooth curve between those points.1

The result is a curve of . The 20-year rate, for example, represents the yield on a theoretical new 20-year bond priced at face value on that date. The published rates are read from fixed points on the curve, so they're called constant maturity rates, and they may not match the yield on any one actual security. They're quoted on the same half-year convention as ordinary bond yields.2

The rest of this lesson is for members

Still to come in this lesson: Six real curves, Three ways the curve moves, What sets the shape, Forward rates, Three curves from the same prices, Inversions, by the record, What the curve does to a bond's return, the key takeaways, and 2 quiz questions with explanations.

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Notes and sources

  1. U.S. Department of the Treasury. Treasury Yield Curve Methodology. Checked 2026-10-12. Back to text
  2. U.S. Department of the Treasury. Interest Rates: Frequently Asked Questions. Checked 2026-10-13. Back to text
  3. Federal Reserve Bank of St. Louis (FRED), from the Board of Governors of the Federal Reserve System. Treasury Constant Maturity yields, daily (series DGS3MO, DGS1, DGS2, DGS5, DGS10, DGS30), through October 8, 2026. Checked 2026-10-12.
  4. Board of Governors of the Federal Reserve System. Long-Term Interest Rates, speech by Chairman Ben S. Bernanke (March 1, 2013). Checked 2026-10-12.
  5. Federal Reserve Bank of New York. The Yield Curve as a Leading Indicator. Checked 2026-09-30.
  6. National Bureau of Economic Research. US Business Cycle Expansions and Contractions. Checked 2026-10-14.
  7. National Bureau of Economic Research. Business Cycle Dating Committee Announcements. Checked 2026-10-14.