Term structure of interest rates
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
The set of yields across maturities; the yield curve or spot curve.
Term structure of interest rates in plain English
Imagine you lend the government money and it pays you back later with interest — the 'yield' is just the yearly interest rate you earn. The term structure of interest rates is simply a chart of those rates for loans of different lengths: 3 months, 2 years, 10 years, and so on. It matters because it shows what the market thinks about the future — usually longer loans pay a bit more (since your money is tied up and uncertain), and when that pattern flips, it can be a warning sign about the economy. People also call it the 'yield curve,' because when you plot rate against loan length, it draws a curve.
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