Imagine you are at a speed dating event, circling a room filled with people who, like yourself, are looking for love. The problem is, that besides a clutch of banal questions and answers, you have very little information to go on in deciding who is worth asking out on a longer date.

You could, for example, be looking for a steady long-term relationship, and have no indication whether the person sitting across from is likely to kidnap your cat and key your car, or if they are the future mother or father of your yet-to-be-born children.

The example above goes some way to explain the tortuous nature of the human courtship process, and why financial markets have developed a tool to side step this uncertainty and quickly size up a prospective investment.

A yield curve is a graphical representation of interest rates of the same type of debt security across different maturities. So in the case of New Zealand government bonds, it would depict them ranging from three months to 30 years, with the varying interest rates forming a typical curve.

Under normal economic circumstances, New Zealand short-term interest rates would be lower than long-term rates. The yield curve would be upward sloping, suggesting that investors expect short term interest rates to rise. This may anticipate higher future inflation in a growing economy.

An inverted, or downward-sloping, yield curve is where short-term interest rates are higher than long-term interest rates. This is a signal to investors that short-term interest rates are expected to decrease, which may suggest the economy is slowing.

The slope of the curve also conveys information about the pace of the economy, and the steeper it is, the faster investors may expect an economy to grow or contract.

Yield curves are not limited to government bonds, but can be applied to any set of debt instruments that bear the same risk profile, such as all the bonds issued by a single firm (albeit without the effects on a national currency).

Of course, this being economics, you can get flat and lumpy yield curves too, and all the curves are subject to change at any moment based on the economic fundamentals of the issuer.Ultimately, it is a useful tool (among many) which investors can use to size up the risk of a prospective or existing investment. Now if only we could develop one that could help us tell bunny boilers from the homemakers, or the stalkers from the Romeos.