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A chart showing interest rates on bonds of different lengths - it predicts recessions when it inverts.
Why It Matters
The yield curve is one of the most reliable recession predictors. Normally, long-term bonds pay more than short-term (you get rewarded for locking up money longer). When short-term rates exceed long-term rates (inversion), it signals investors expect trouble ahead. An inverted yield curve has preceded every U.S. recession since 1955.
Key Points
- Normal: 10-year Treasury yields more than 2-year Treasury
- Inverted: 2-year yields more than 10-year (recession warning)
- The lag between inversion and recession is typically 6-18 months
Related Terms
Common Questions
A chart showing interest rates on bonds of different lengths - it predicts recessions when it inverts. The yield curve is one of the most reliable recession predictors. Normally, long-term bonds pay more than short-term (you get rewarded for locking up money longer).
The yield curve is one of the most reliable recession predictors. Normally, long-term bonds pay more than short-term (you get rewarded for locking up money longer). When short-term rates exceed long-term rates (inversion), it signals investors expect trouble ahead. An inverted yield curve has preceded every U.S. recession since 1955.
Normal: 10-year Treasury yields more than 2-year Treasury
Inverted: 2-year yields more than 10-year (recession warning)
The lag between inversion and recession is typically 6-18 months