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What is the term structure of interest rates, and how is it related to the yield curve?

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The term structure of interest rates refers to the link between bond yields or interest rates and different terms or maturities. The term structure of interest rates is referred to as a yield curve when it is graphed, and it is extremely important in determining the state of an economy at any one time.

Generally speaking, the term structure of interest rates is a useful indicator of expectations for future economic growth. A substantially positive normal curve is a hint that investors expect future inflation to be high and robust economic growth. Three opposing theories have garnered the most interest throughout history.

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