Glossary
Yield curve
A line plotting Treasury yields across maturities, from months to 30 years, whose slope reflects rate expectations and is read as an economic signal.
The yield curve plots the yields of bonds of the same credit quality, usually US Treasuries, against their time to maturity, from 1-month bills out to 30-year bonds. Its shape summarizes what the market expects for short-term interest rates, inflation and growth. Because banks, borrowers and investors all price off it, changes in its slope ripple through mortgages, corporate debt and stock valuations.
The shapes and what they suggest
- Normal (upward-sloping). Longer maturities yield more, compensating lenders for tying money up longer. This is the usual state.
- Flat. Short and long yields are close, often as the Fed raises rates late in an expansion.
- Inverted. Short-term yields exceed long-term ones. Markets expect rates to fall, usually because they expect a slowdown.
Reading it with care
An inverted curve has preceded every US recession since the late 1960s, which is why it is so closely watched, but the lead time has varied from several months to about two years, and the signal is not infallible. The 2s10s spread inverted in July 2022 and stayed negative until late summer 2024, one of the longest inversions on record, without a recession over that stretch. The curve can also steepen for opposite reasons: because the Fed is cutting short rates, or because investors demand more to hold long bonds. Look at which end is moving.