The Treasury yield curve is one of the most watched indicators in finance. It’s a simple chart — US government bond yields plotted by maturity — but it encodes the market’s collective view on economic growth, inflation, and monetary policy.
What the Yield Curve Shows
The yield curve plots the interest rates of US Treasury securities across maturities, from 1-month bills to 30-year bonds. Each point represents how much the US government must pay to borrow money for that duration.
Maturities typically plotted: 1M, 3M, 6M, 1Y, 2Y, 3Y, 5Y, 7Y, 10Y, 20Y, 30Y
Since these are backed by the US government, Treasury yields represent the “risk-free” rate — the baseline cost of borrowing that all other rates build upon.
Curve Shapes and What They Mean
Normal Curve (Upward Sloping)
Longer maturities yield more than shorter ones. This is the default state — investors demand higher compensation for locking up money for longer periods because of the uncertainty about future inflation and rates.
What it signals: Economic growth expectations are healthy. Investors are willing to take duration risk because they believe the economy will continue expanding.
Flat Curve
Yields across maturities converge to similar levels. The premium for lending longer disappears.
What it signals: Transition period. Markets are uncertain about the direction of the economy and monetary policy. Often occurs when the Fed is nearing the end of a tightening cycle.
Inverted Curve (Downward Sloping)
Short-term rates exceed long-term rates. This is abnormal — investors are accepting lower yields on long bonds despite the additional duration risk.
What it signals: The bond market expects economic weakness. Investors lock in long-term rates now because they believe rates will fall in the future (as the Fed cuts in response to a slowdown).
The Recession Signal
The inverted yield curve has one of the strongest track records in economics. Specifically, the 2-year/10-year spread inverting has preceded every US recession since the 1960s, with only one false positive.
| Inversion Start | Recession Start | Lead Time |
|---|---|---|
| August 1978 | January 1980 | ~17 months |
| September 1980 | July 1981 | ~10 months |
| January 1989 | July 1990 | ~18 months |
| February 2000 | March 2001 | ~13 months |
| August 2006 | December 2007 | ~16 months |
| March 2022 | — | — |
Why Does Inversion Predict Recessions?
Two mechanisms are at work:
- Signal effect — The bond market (trillions of dollars in informed capital) is pricing in that the Fed will need to cut rates, which happens during economic downturns
- Causal effect — When short-term rates exceed long-term rates, bank lending margins compress. Banks borrow short (deposits) and lend long (mortgages, business loans). Compressed margins reduce lending, which slows the economy
Key Spreads to Watch
Not all parts of the curve carry equal weight:
| Spread | What It Shows |
|---|---|
| 2Y/10Y | Most widely followed recession indicator |
| 3M/10Y | Fed’s preferred measure of curve shape |
| 2Y/30Y | Long-duration economic outlook |
| Fed Funds/10Y | Monetary policy vs market expectations |
What Moves the Yield Curve
| Factor | Short End Effect | Long End Effect |
|---|---|---|
| Fed rate decisions | Direct — short rates track Fed Funds closely | Indirect — depends on growth/inflation expectations |
| Inflation data | Moderate | Strong — long bonds are most sensitive to inflation surprises |
| Economic data | Moderate | Moderate — flows through growth expectations |
| Treasury supply | Minimal | Significant — large issuance can push long-end yields up |
| Flight to safety | Pulls short rates down | Pulls long rates down (often more) |
The Yield Curve in FinBrain Terminal
The FinBrain Terminal displays the US Treasury yield curve in two locations:
- Dashboard — Compact yield curve widget for at-a-glance monitoring with automatic inversion detection
- Fixed Income page — Full-sized yield curve alongside the EUR yield curve, central bank policy rates, interbank rates, and the ECB systemic stress index
The Fixed Income page also provides context for yield curve analysis: BIS policy rates for 12 central banks, EURIBOR/ESTR interbank rates, and the ECB Composite Indicator of Systemic Stress.