It indicates return earned by an investor on a debenture or bond held till maturity. It is a discount rate that equates the present value of a security s inflows to its purchase price. It is assumed that the periodic inflows are reinvested at the rate equal to the yield to maturity. It is a graphical representation of the pattern of yields on a specific date for government securities with varying maturities. Yield curve can take different shapes depending upon the prevailing conditions at any point of time.
Yield curve reflects the broad expectations about interest rates.
Zero coupon bond Zero-coupon bonds are called so because the coupon on the bond is equal to zero. The coupon rate, as has been defined before, is the amount of interest that the owner of the bond is paid. Instead, zero-coupon bonds are bonds issued at a fraction of their par value that increase in value as they approach maturity. Income from a zero-coupon bond comes completely from the bond appreciating in value over time.