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FinVolio

Learn · Rates and bonds

Yield curve and inversion

The gap between long-term and short-term bond yields. When short yields rise above long ones (an inversion), recessions have often followed.

Normally lenders demand more to lend for ten years than for two, so long yields sit above short ones and the curve slopes upwards. FinVolio measures it as the 10-year yield minus the 2-year.

An inverted curve means the market expects short-term rates to fall in future, usually because it expects the central bank to cut in response to a slowdown.

Why it matters

An inverted US curve has preceded most US recessions since the 1960s, typically by 6 to 24 months. It is not a perfect signal: timing varies widely and there have been false alarms. Banks also borrow short and lend long, so an inverted curve squeezes their margins and can tighten lending.

See the data: US yield curve.

General information, not advice.