Spread between two-year contracts.

   the interest rate that will make the net present value of the cash flows from an investment equal to the price (or cost) of the investment. The net present value is the present value of future cash flows, discounted at the present cost of capital. The current yield relates the annual coupon yield to the market price by dividing the coupon by the price divided by 100, neglecting the time value of money or potential capital gains and losses. The simple yield-to-maturity takes into account the effect of the capital gained or lost at maturity, as well as the current yield.

   the yield curve is a graph of the term structure of interest rates. It is usually given in terms of the spot yields on bonds with different maturities but the same risk factors (such as creditworthiness of issuer), plotted against maturity. In general, yields will increase with maturity and with the riskiness of the debt. Yield curves can be plotted for default-free bonds. Bonds that may default will fall on another yield curve at some spread to the default-free curve.

   an option whose underlying is the shape of the yield curve, normally defined as the yield of a longer-maturity bond minus the yield of a shorter-maturity bond. This allows investors to take a view on interest rates without taking a view on the bond market’s direction. The value of a call yield curve option appreciates as the curve flattens, whereas a put’s value decreases.

   a swap in which two interest rate streams are exchanged, reflecting different points on the yield curve.