Yield Curve
A graph plotting bond yields across different maturities, used to gauge economic and interest rate expectations.
What is Yield Curve?
The yield curve is a line graph plotting the interest rates (yields) of bonds of equal credit quality — typically U.S. Treasury securities — across a range of maturities, from 3 months to 30 years. In a normal (upward-sloping) yield curve, longer-term bonds offer higher yields than short-term bonds as compensation for additional time and uncertainty. An inverted yield curve — where short-term rates exceed long-term rates — has preceded every U.S. recession since 1955 and is closely watched as a leading economic indicator. A flat yield curve suggests a transition between economic expansion and contraction. The most commonly cited spread is the difference between the 10-year and 2-year U.S. Treasury yields.
Example
The U.S. Treasury yield curve inverted in July 2022 when the 2-year yield exceeded the 10-year yield for the first time since 2019. The inversion deepened through 2023, with the spread reaching -109 basis points in March 2023 — the deepest inversion since 1981 — as markets anticipated a potential recession.
Source: FRED — 10-Year Treasury Constant Maturity Minus 2-Year