What is the yield curve?

Lend money for longer and you’d normally expect to earn more. Plot that idea out across every maturity — from a few months to 30 years — and you get the yield curve.

What it shows

The yield curve plots yield (up the side) against maturity (along the bottom) for bonds of the same credit quality — most often government bonds. At a glance, it shows you what investors earn for lending over different time horizons. Because it’s built from safe government debt, it acts as a baseline map of interest rates across the whole economy.

A normal, upward-sloping curve

Most of the time the curve slopes gently upward: longer maturities yield more than shorter ones. That makes intuitive sense — if you’re tying your money up for 10 years instead of one, you demand extra yield to compensate for the wait and the added uncertainty. An upward slope is consistent with an economy that’s expected to keep growing.

The inverted curve — and why it matters

Occasionally the curve flips. An inverted curve slopes downward: short-term yields are actually higher than long-term ones. This is unusual, and it usually reflects an expectation that the central bank will cut interest rates in the future as growth slows.

Here’s why it gets so much attention: historically, an inverted yield curve has preceded most recessions. The US curve inverted before the 2008 financial crisis, and before several downturns before that. It isn’t a guarantee — but as a warning sign with that track record, markets watch it very closely.

Steepening and flattening

The curve is always shifting shape, and traders have names for the moves:

• Steepening — the gap between long and short yields widens.
• Flattening — that gap narrows.

These shifts signal changing expectations about growth and central-bank policy, which is why economists read them like a mood ring for the economy.

The 2s10s spread

You’ll often hear people refer to the "2s10s." It’s simply the 10-year yield minus the 2-year yield — a one-number summary of the curve’s slope. A positive 2s10s means a normal, upward-sloping curve. A negative 2s10s means the curve is inverted, which markets treat as a recession signal. It’s shorthand you’ll see in headlines constantly once you start noticing it.