Yield Curve

A chart showing interest rates across different maturities from 1-month to 30 years. Normally slopes upward \u2014 longer maturities pay more because investors demand a premium for tying up money longer. An inverted yield curve (short rates above long rates) has historically predicted every US recession.

Why it matters

The most reliable recession predictor in financial history. An inverted yield curve (specifically 2Y-10Y spread going negative) has preceded every US recession since the 1970s, with very few false signals.

How to read it

Steepening: economy strengthening, or Fed easing. Flattening: economy slowing, or Fed tightening. Inverted: recession risk elevated (typically 12-18 months out). Bear steepening (long yields rising) is different from bull steepening (short yields falling) — the cause matters.

Lessons that use this term

• The Yield Curve, in Plain English
• Yield Curve Shape and Bank Net Interest Margin
• Understanding Yield Curves
• Yield Curve Strategies: Bullets, Barbells, and Ladders
• Yield-Curve Steepeners: Long Short-End, Short Long-End
• Yield-Curve Butterflies: Trading Curvature Directly

Related terms

Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta

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