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  yield curve depicts the relationship between interest rates and time. The yield to maturity is the interest rate which measures the opportunity cost (the return foregone) of borrowing or lending money. If you are a lender (supplier of capital), you give up the opportunity to use the money today in return for money in the future. If you are a borrower, you give up the opportunity to use the money in the future in return for getting access to the money now. The US Treasury Yield curve shows yields on debt sold by the US Treasury. It is one of the most important sources of information about the economy. This interactive chart shows you the trend in these rates over the last thirty days and also an animation (selected from the dropdown menu):

What Determines the Yield Curve?

From the chart, and specially the animation, you can see that interest rates can change quite a bit even over short periods of time. The primary determinants of these changes
are inflation expectations, changes in consumption and growth patters, and actions of the Federal Reserve Bank.

Inflation Expectations

If consumer prices are expected to increase strongly then the suppliers of capital must be rewarded more for postponing their consumption decisions.  That is, the opportunity cost of consumption must increase and so inflation expectations will have a direct first order impact upon interest rates.  To explore this further see the tab above labelled "Inflation."

Consumption/Growth Expectations

If growth declines and the economy moves into a recession -- how would this influence your decision to consume today?  The answer is likely to be negatively.  Job prospects, bonuses, pay rises are likely to disappear and so major consumption decisions become postponed.  This implies that the suppliers of capital no longer need to be rewarded as much for postponing consumption and thus interest rates will decline.

Federal Reserve Bank Expectations

In the United States, the Federal Reserve has a dual mandate:  To promote stable inflation and to promote maximum employment. In addition, the Federal Reserve is legally permitted to manipulate the US Treasury markets.  As a result, the Federal Reserve Bank manipulates the US Treasury yield curve -- particularly at the short end in an attempt to implement it's dual manadate.

When the Federal Reserve Bank is trying to promote consumption and growth it lowers interest rates by agressively buying and pushing prices up.  Given the inverse relationship between prices and the yield to maturity this implies that interest rates fall.  If it is trying to dampen consumption/growth the Federal Reserve Bank does the opposite and starts to aggresively sell Treasury instruments to push prices down.  This results in shifting interest rates up.