A yield curve is a graph showing the relationship between yield (on the y- or vertical axis) and maturity (on the x- or horizontal axis) among bonds of different maturities and of the same credit quality.

Why does this matter?
Because you can think of a yield curve as a type of investment tea leaf. A yield curve's shape—upward sloping, downward sloping or flat—is studied by some bond investors to give them hints about the future direction of interest rates and country's economic pulse. A standard yield curve is one that slopes upward, indicating that bonds with longer maturities provide higher yields than short-term maturities. This is in line with intuitive risk-return relationships: you take on more risk when you hold a long-term bond, so you would expect the market would compensate you with higher yield.

Slope and direction matter to yield curve watchers.

Slope indicates the relationship between holding period and return. For example, a flat curve means investors are taking essentially the same risk for long or short-term bonds and may signal an economic adjustment, as may a very steep curve. A downward, or inverted, yield curve represents a situation in which shorter-term yields are higher than the longer-term yields, which some curve watchers believe may suggest a recession is near at hand.