Atlas Macro

Economy

Yield Curve

A line that plots the interest rates (yields) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

Key points

  • A normal curve slopes upward (longer debt pays more).
  • An inverted curve (short rates above long rates) is a widely watched recession signal, though it has given false alarms, most notably in 2022-24.
  • When a recession did follow an inversion, it typically began 6-24 months after the first inversion.
  • The 2s10s spread (10-year yield minus 2-year yield) is the most quoted measure.

Example

In early March 2023 the 2-year yield topped 5% while the 10-year was just under 4%, an inversion of about 1.1 percentage points, the deepest since 1981.

In history

The 2s10s curve inverted in July 2022 and stayed negative until late summer 2024, the longest inversion on record. The US economy kept growing.

Related terms