Yield Curve
Graph showing bond yields across different maturities. Normal = upward slope (long-term pays more). Inverted = recession warning.
What You Need to Know
Yield curve plots interest rates of bonds across different maturity lengths—from 1 month to 30 years. Shows relationship between short-term and long-term interest rates.
Normal yield curve (healthy economy):
- 1-year Treasury: 3%
- 5-year Treasury: 3.5%
- 10-year Treasury: 4%
- 30-year Treasury: 4.5% Upward slope: Lenders demand higher rates for tying up money longer.
Flat yield curve (uncertainty):
- All maturities pay similar rates (3.5-4%)
- Economy at inflection point
Inverted yield curve (recession warning):
- Short-term rates > long-term rates
- 2-year: 4.5%, 10-year: 3.5%
- Investors expect rate cuts in future (weak economy)
Recession indicator: Inverted yield curve (2-year > 10-year) has preceded every recession since 1950. Typically 12-24 months before recession starts.
2022-2023 inversion: 2-year hit 5%, 10-year at 3.8%. Recession predicted for 2023-2024.
Sources & References
This information is sourced from authoritative government and academic institutions:
- treasury.gov
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/
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Related Terms in Economics
Federal Funds Rate
Interest rate banks charge each other for overnight loans. Set by Federal Reserve. Controls all other interest rates—mortgages, credit cards, savings.
Inverted Yield Curve
Short-term bonds pay higher rates than long-term bonds. Recession predictor—has preceded every recession since 1950, usually by 12-24 months.
Market Correction
10-20% market decline from recent peak. Healthy and common—happens every 1-2 years. Not as severe as 20%+ bear market.
Prime Rate
Interest rate banks charge most creditworthy customers. Usually Fed funds rate + 3%. Credit cards and HELOCs tied to prime rate.
Recession
Economic downturn with declining GDP, rising unemployment, and reduced spending. Technically 2 consecutive quarters of negative GDP growth.
Stagflation
Stagnant economy with high inflation—worst of both worlds. Rising prices + high unemployment + no growth. Rare but devastating.