Yield Curve — Inversion, Steepening & Flattening
Overview
The yield curve plots interest rates across different bond maturities and is one of the most reliable recession predictors in financial markets. An inverted curve — where short-term rates exceed long-term rates — has preceded every US recession in the last fifty years, making it an essential indicator for macro traders and long-term investors alike. Understanding the differences between inversion, steepening, and flattening helps you anticipate shifts in monetary policy and equity market direction. Track the 2s10s spread and other key spreads on our yield curve page to stay ahead of the economic cycle.
Key Takeaways
- Normal curve: long-term rates > short-term rates (upward slope).
- Inverted curve: short-term rates > long-term rates — historically precedes recessions.
- The 2s10s (2-year minus 10-year yield) is the most watched spread.
- Yield curve un-inversion (steepening) often signals a recession is imminent, not that danger has passed.
Practical Tips
- Track the 2s10s spread on FRED or TradingView — it updates daily.
- An inverted curve can persist for 6-18 months before the recession hits.
- Banks suffer during inversions (compressed net interest margin) — underweight financials.
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