In a yield curve, what does the x-axis typically represent?

In a yield curve, the x-axis typically represents time in years, such as the maturities of bonds. This is critical because the yield curve illustrates the relationship between interest rates (yields) and the time to maturity of debt securities, commonly government bonds. The yield on bonds can vary significantly based on how long an investor is willing to lend their money, which is why time in years is plotted on the horizontal axis.

Understanding this relationship allows investors and analysts to gauge future interest rate movements and economic expectations. A normal yield curve slopes upward, indicating that longer maturities generally pay higher yields to compensate for the increased risk and uncertainty over time. In contrast, the y-axis represents the yield or interest rate, which is critical for interpreting the yields offered on different maturities and formulating investment strategies.

The other choices, while relevant financial concepts, do not align with the standard representation of a yield curve. Interest rates are reflected on the y-axis, bond prices are not directly represented on a yield curve, and inflation rates would need a different context for analysis. Thus, recognizing that the x-axis signifies time in years is fundamental for interpreting the implications of changes in the yield curve.