Yield Curve.
A definition, in plain English — with the books that teach it.
What it means
The yield curve plots the interest rates (yields) of bonds with identical credit quality — typically U.S. Treasuries — across different maturities, from short-term bills to 30-year bonds. A normal upward-sloping curve reflects higher yields for longer maturities, compensating investors for the added time risk. An inverted yield curve — where short-term rates exceed long-term rates — has historically preceded recessions. A flat curve signals economic uncertainty. Central banks, economists, and bond managers monitor the curve shape as a leading macroeconomic indicator.
Example
In late 2022, the 2-year Treasury yielded 4.7% while the 10-year yielded 3.9% — a deeply inverted curve. Historically this spread (the "2s-10s") inverting has preceded every U.S. recession since the 1970s, with a lag of roughly 12-18 months.
