What Is the Yield Curve and Why Does Inversion Matter?

The yield curve plots interest rates on government bonds from short to long maturities. Normally longer bonds pay more. When short-term yields rise above long-term yields, the curve is inverted.

Why it matters for investors

An inverted 10-year minus 2-year spread has preceded most US recessions, because it suggests investors expect rates and growth to fall. It is a warning sign, not a timing tool; the lag can be many months.

Common questions

What does a steepening yield curve mean?

The gap between long and short yields is widening, often as the Fed cuts short-term rates or as growth and inflation expectations rise.