Financial terms starting with “Y”

6 terms · plain-language definitions for lifelong students and investors · Full glossary

Yield Curve: A chart showing interest rates across different maturities from 1-month to 30 years. Normally slopes upward \u2014 longer maturities pay more because investors demand a premium for tying up money longer. An inverted yield curve (short rates above long rates) has historically predicted every US recession.
Yield Curve Inversion: When short-term interest rates exceed long-term rates, creating a downward-sloping yield curve instead of the normal upward slope. An inverted yield curve has preceded every US recession in the last 50 years, typically by 12 to 18 months, making it the most reliable recession predictor in economics.
Yield to Maturity (YTM): The total annualized return you earn if you hold a bond from today until it matures, accounting for all coupon payments, the purchase price, and the face value received at maturity. YTM is the standard way to compare bonds of different maturities and coupon rates on an apples-to-apples basis.
Yield to Worst: The lowest possible yield on a bond with embedded options (callable, putable, sinking fund provisions) \u2014 calculated assuming the issuer calls at the worst time for the investor. The standard metric for callable bond analysis.
Yield-Curve Butterfly: A three-leg curve trade structure: LONG one maturity point (the "belly," typically 5-year) and SHORT two other maturity points (the "wings," typically 2-year and 10-year), DV01-weighted so both parallel shifts AND slope changes produce approximately zero P&L. The trade isolates curve CURVATURE -- profits if the belly outperforms the wings or vice versa, depending on direction. The third dimension of curve positioning beyond level and slope; the natural expression of "the belly is underpriced relative to the wings" or the reverse view.
YTM: Your total annualized return if you hold the bond to maturity. Accounts for coupon payments, the purchase price, and the face value at maturity. Assumes all coupon payments are reinvested at the same rate \u2014 an assumption rarely met in practice.

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