Several theories explain the shape of the yield curve and various market forces, such as investor expectations, supply and demand, and central bank policies drive changes of the yield curve shape. However, not all parts of the curve are equally affected. Therefore, in practice, the yield curve is often broken down into different segments, each influenced by distinct factors. Practitioners generally divide the yield curve into three main segments, the front end, the belly, and the long end. Let's take a closer look at each.

The front end refers to maturities typically ranging from overnight to two years. This segment is primarily influenced by monetary policy decisions, such as changes in central bank interest rates. It reflects short term inflation expectations, monetary policy outlook, and overall liquidity conditions. Because it reacts strongly to immediate policy changes, the front end gives us insights into current economic conditions and short term market expectations.

Next, we have the belly of the curve covering maturities from two to 10 years. The belly is influenced more by broader economic conditions and fiscal policy impacts than by day-to-day monetary policy. Shifts in the belly can signal changes in investor confidence and expectations about future economic growth or inflation. For instance, rising yields in the belly could reflect concerns over higher inflation while falling yields may indicate fears of slower growth or increased demand for safer medium term bonds. Finally, the long end includes maturities beyond 10 years. This part of the curve is primarily driven by long-term inflation expectations and general market sentiment about future economic trends and risks. Investors often analyze the long end for insights into long-term economic stability. Inflation and growth prospects changes here tend to reflect the market's outlook on how long-term risks like inflation or structural economic issues will play out.