What Is an Inverted Yield Curve?

The yield curve graphically represents yields on similar 澳洲幸运5官方开奖结果体彩网:debt securities across a variety of maturities. A normal yield curve slopes upward, displaying yields that run from low to high as maturities increase. However, an inverted yield curve reveals long-term 澳洲幸运5官方开奖结果体彩网:interest rates are lower than short-term interest rates.

Understanding Inverted Yield Curves

The yield curve shows the borrowing cost associated with debt securities of different 澳洲幸运5官方开奖结果体彩网:maturities. Normally, the yields for shorter-term securities a♐re lower than those for longer-term securities. That is, the yield curve typically slopes upward, reflecting the fact tha𓆉t holders of longer-term debt have taken on more risk.

The yield curve is also known as the 澳洲幸运5官方开奖结果体彩网:term structure of interest rates. For example, the U.S. Treasury publishes daily Treasury bill and bond yields that can be charted as a curve.

Analysts often distill yield curve signals to a spread between two maturities. This simplifies the task of interpreting a yield curve in which an inversion exists between some maturities but not others. The downside is that there is no general agreement as to which spread serves as the most reliable 澳洲幸运5官方开奖结果体彩网:recession indicator.

As illustrated above, a yield curve inverts when long-term interest rates drop below short-term rates, indicating that investors are moving money away from short-term bonds and into long-term ones. This suggests that the market as a whole is becoming more pessim💝istic about the econo🎀mic prospects for the near future.

Such an inversion has served as a relatively reliable recession indicator in the modern era. Because yield curve inversions are relatively rare﷽ yet have often preceded recessions, they typically draw heavy scrutiny from financial market participants.

Indicative Spreads

Academic studies of the relationship between an inverted yield curve and recessions have tended to look at the spread between the yields on the 10-year 澳洲幸运5官方开奖结果体彩网:U.S. Treasury bond and the three-month Treasury bill. On the other hand, market participants have more often focused on the yield spread between the 10-year and two-year bonds.

Federal Reserve Chair Jerome Powell has said that he prefers to gauge recession risk by focusing on the difference between the current three-month Treasury bill rate and the market pricing of derivatives predicting the same rate 18 months later.

Historical Examples of Inverted Yield Curves

The 10-year to two-year Treasury spread has been a generally reliable recession indicator since providing a false positive in the mid-1960s. That hasn’t stopped a long list of senior U.S. economic officials from discounting its predictive powers over the years.

In 1998, the 10-year/two-year spread briefl𝐆y inverted after the Russian debt default. Quick interest rate cuts by the Federal Reserve helped avert a U.S. recession.

In 2006, the spread inverted for much of the year. Long-term Treasury bonds went on to outperform stocks during 2007. The 澳洲幸运5官方开奖结果体彩网:Great Recession began in December 2007.

On Aug. 28, 2019, the 10-year/two-year spread briefly went negative. The U.S. economy suffered a two-month recession in February and March of 2020 amid the outbreak of the COVID-19 pandemic, which could not have been a consideration 🎶embedded in bond prices six months earlier.

Is This Yield Curve Inverted?

At the end of 2022, against a backdrop of surging inflation, the yield curve got inverted again. As of Dec. 30, 2022, the spread between the 10-year and two-year yields, 3.88% and 4.41%, respectively, was 53 percentage points.

As of March 13, 2025, Treasury yields were as follows:

• Three-month Treasury yield: 4.34%
• Two-year Treasury yield: 3.94%
• 10-year Treasury yield: 4.27%
• 30-year Treasury yield: 4.59%

As you can see above (and in the chart below that compares the spread on both dates), the bellwether spread is not inverted. The 10-year U.S. Treasur✤y rate was 33 percentage points above the two-year yield on Marc🦄h 13, 2025.

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The Bottom Line

A yield curve that inverts for an extende🔥d period of time appears to be a more reliable recession signal than one that inverts briefly,𓂃 whichever yield spread you use as a proxy.

Fortunately, however, recessions are rare enough that we haven’t had enough of them to draw definitive conclusions. As one Federal Reserve researcher has noted, “It’s hard to predict recessions. We haven’t had many, and we don’t fully understand the causes of the ones we’ve had. Nevertheless, we persist in trying.”