Bank Analysis School September 2023 - Presentations & Resources

APPENDIX B – YIELD CURVE SHAPES

Institutions should assess a range of alternative future interest rate scenarios in evaluating interest rate risk exposure, including changes in the slope and shape of the yield curve (i.e. yield curve risk).

Yield

Maturity

Normal

Flat

Steep

NOTE: a flattening yield curve typically represents the greatest risk, as liabilities tend to be more correlated to short-term rates, with assets (especially bonds ) more likely to be based on longer-term rates.