In simple terms
A yield curve shows what it costs a government to borrow for different lengths of time, all on one line. Time to maturity runs along the bottom, the interest rate up the side.
Curves are usually drawn from government bonds, because those are the benchmark that other borrowing is priced against.
How it works
Pick one issuer, say the US Treasury, and plot the yield available today at each maturity: one month, two years, ten years, thirty years. Join the dots and you have the curve.
Normally the line slopes upward. Lenders want extra compensation, called the term premium, for tying money up longer and for the uncertainty that comes with it. On April 1, 2022, for instance, the 30 day Treasury bill yielded 0.15 percent while the 30 year bond yielded 2.44 percent.
A flat curve means short and long rates sit close together. An inverted curve means short-term rates are higher than long-term rates, which usually signals that markets expect weaker growth or rate cuts ahead.
Every large economy has its own curve, and countries differ in which gap they watch. In the United States the spread between the ten year yield and either the two year or the three month is quoted most often.
Why it matters
Mortgages, business loans and savings rates are priced off these benchmarks, so the shape of the curve works its way into household budgets.
The slope is also one of the most watched recession indicators. It has turned negative before virtually every US recession since the 1970s, with a single false signal in the mid-1960s.
Economists add two cautions. Correlation is not causation, and an unusually low term premium can weaken the signal, so the curve is read alongside other data rather than on its own.
Where you’ll see it
- Central bank commentary and bank earnings calls.
- Daily rate pages published by treasuries and finance ministries.
- Mortgage and corporate borrowing coverage.
- Recession forecasts in the business press.
Example
If the two year Treasury yields 4.8 percent while the ten year yields 4.3 percent, the curve is inverted, and that gap of 0.5 percentage points would be described as an inversion of 50 basis points.
Often confused with
A yield curve is not a single yield. One bond yield is one point. The curve is the whole set of points across maturities, and its shape is what carries the information.
Key facts
- The yield curve plots interest rates on Treasury securities against their time to maturity.1
- An inversion, in which short-maturity rates exceed long-maturity rates, is typically associated with a recession in the near future.1
- The yield curve slope has turned negative before virtually every US recession since the 1970s, with one false positive in the mid-1960s.1
- Curves normally slope upward because lenders demand a term premium for committing money for longer.2
- On April 1, 2022, the 30 day US Treasury bill yielded 0.15 percent while the 30 year bond yielded 2.44 percent.2
This entry explains a financial term. It is not financial advice.
Go deeperHow Do Interest Rates Affect the Economy?Related concepts
Quick checkWhat does an inverted yield curve mean?Show answer
It means short-term interest rates are higher than long-term rates, the reverse of the usual pattern, which historically has often preceded a recession.
Sources
- Federal Reserve Bank of Chicago. Why Does the Yield-Curve Slope Predict Recessions? Chicago Fed Letter No. 404. 2018 (accessed 18 September 2026)
- Brookings Institution. The Hutchins Center explains: the yield curve, what it is and why it matters. Undated (accessed 18 September 2026)
Editorially reviewed by Specialty Digest Editorial TeamLast reviewed September 21, 2026Researched and drafted with AI assistanceReport an issue