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Watch: What Is a Yield Curve and How to Make a Yield Curve in Excel

Run time: 5:43Covers: the definition, curve shapes, and building the chart in ExcelTaught by: Dr. Paul Borosky, DBA, MBA

The Short Answer

What Is a Yield Curve?

Answer

A yield curve is a line chart of bond yields, with time to maturity on the horizontal axis and yield on the vertical axis. All the bonds share the same credit quality, usually U.S. Treasuries, so the only thing changing is time. The shape shows how the market prices short money against long money.

The Key Measure

Spread = Ylong − Yshort

Ylong
Yield on the long bond, often the 10-year Treasury
Yshort
Yield on the short bond, often the 2-year or 3-month Treasury
Spread
Positive = normal curve. Near zero = flat. Negative = inverted.

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The Three Shapes

What Do Normal, Flat, and Inverted Yield Curves Mean?

ShapeWhat it looks likeWhat it usually signals
NormalSlopes up. Long bonds yield more than short bonds.Investors want extra pay for tying money up longer. The usual state of things.
FlatShort and long yields are close together.Uncertainty. The market is unsure whether rates will rise or fall.
InvertedSlopes down. Short bonds yield more than long bonds.Investors expect rates to fall later. Analysts watch it as a possible warning of a slowdown.

For a business owner, the curve matters in plain terms: it shapes what banks charge on a short line of credit versus a long equipment loan.

Step by Step

How Do You Make a Yield Curve in Excel?

The yields below are example numbers for practice only, not current market rates. For a real assignment, pull today's Treasury yields from the U.S. Treasury website.

A: MaturityB: Example yield
3 Month3.20%
1 Year3.40%
2 Year3.55%
5 Year3.80%
10 Year4.15%
30 Year4.50%
  1. 1

    Enter the data

    Type the maturities in column A (A2:A7) and the yields in column B (B2:B7). Shortest maturity on top.

  2. 2

    Format the yields

    Select B2:B7 and format as Percentage with two decimals, so 0.032 shows as 3.20%.

  3. 3

    Insert a line chart

    Select A1:B7, then Insert > Charts > Line. Excel puts maturities on the horizontal axis and yields on the vertical axis.

  4. 4

    Label it

    Add a chart title ("Example Treasury Yield Curve") and axis titles: Maturity and Yield. Unlabeled charts lose points.

  5. 5

    Measure the spread

    In a blank cell type =B6-B4. That is the 10-year minus the 2-year: 4.15% − 3.55% = 0.60%. Positive, so this example curve is normal.

Dr. Paul's Insight

A line chart spaces every point evenly, so 3 months to 1 year looks as wide as 10 years to 30 years. That is fine for reading the shape. If your professor wants true spacing, use a scatter chart with maturities entered as years (0.25, 1, 2, 5, 10, 30).

Bond Basics

How Do You Find a Bond Price and Yield to Maturity in Excel?

Every point on the curve is a yield to maturity. Two Excel functions connect price and yield: =PV(rate, nper, pmt, fv) for price and =RATE(nper, pmt, pv, fv) for yield. Each example below is a $1,000 face value bond with a 5% annual coupon ($50 a year) and 10 years left.

ProblemExcel formulaAnswer
Price when the market yield is 6%=PV(6%,10,50,1000)−$926.40 (price $926.40)
Price when the market yield is 4%=PV(4%,10,50,1000)−$1,081.11 (price $1,081.11)
Yield to maturity when the price is $1,050=RATE(10,50,-1050,1000)4.37%

Excel shows the price as negative because it is cash you pay. Notice the pattern: yield above the coupon means a price below $1,000, and yield below the coupon means a price above $1,000.

Avoid These

What Are the Most Common Yield Curve Mistakes?

  • Mixing credit quality. A curve compares Treasuries to Treasuries. Drop a corporate bond in and the line measures risk, not time.
  • Sorting maturities out of order. Excel charts rows in the order you type them. Put the shortest maturity first.
  • Calling example numbers real rates. Practice data is fine for learning. Label it, and use current Treasury data for real analysis.
  • Reading one inversion as a guarantee. An inverted curve is a signal analysts watch, not a promise of what happens next.
  • Forgetting the sign in RATE. The price must be negative in =RATE(). Leave it positive and Excel returns an error.

Real World Use

How a Student Uses a Yield Curve

Class Assignment

Classify two curves from a problem set

The assignment gives two sets of practice yields and asks you to name each shape. Set A: 3-month 5.10%, 2-year 4.80%, 10-year 4.25%. Set B: 3-month 4.40%, 2-year 4.35%, 10-year 4.45%.

Set A spread: 4.25% − 4.80% = −0.55%, and the 10-year minus the 3-month is −0.85%. Both negative, so Set A is inverted. Set B spread: 4.45% − 4.35% = 0.10%. Barely positive, so Set B is close to flat.

Chart both sets on the same line chart, one series each, and the difference is obvious at a glance. That picture plus the spread math is a complete answer.

Keep Going

More Videos in This Series

Bond Valuation in Excel

Dr. Paul solves for a bond price and its yield to maturity with Excel functions. (7:06)

Preferred Stock Price and Required Rate of Return

Dr. Paul values a fixed dividend the same way the market values a fixed coupon. (12:41)

How to Calculate Present Value

Dr. Paul explains the discounting idea behind every bond price. (6:10)

Questions

Yield Curve Questions Students Ask

What is a yield curve in simple terms?
A yield curve is a chart of interest rates on bonds of the same quality, plotted from shortest maturity to longest. It shows whether short-term or long-term borrowing costs more right now.
What does an inverted yield curve mean?
An inverted curve means short-term bonds yield more than long-term bonds. It usually signals that investors expect rates to fall later. Analysts watch it as a possible warning of an economic slowdown, but it is a signal, not a guarantee.
How do you make a yield curve in Excel?
Enter maturities in column A and yields in column B, shortest first. Select both columns and insert a line chart. Add a title and axis labels, then measure the spread with a formula such as =B6-B4.
What is a normal yield curve?
A normal yield curve slopes upward, with long-term yields higher than short-term yields. Investors expect extra return for locking money up longer, so this is the most common shape.
How is yield to maturity related to the yield curve?
Each point on the curve is a yield to maturity for a bond of that length. In Excel, =RATE(10,50,-1050,1000) finds the yield on a 10-year, 5% coupon bond priced at $1,050, which is 4.37%.
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Written by Dr. Paul Borosky, DBA, MBA, current college professor, business consultant, and author with 14+ years and 1,000+ businesses served.

This page is for general educational purposes only. It is not financial, investment, legal, or tax advice.