What is the yield curve?
The yield curve compares interest rates on government bonds of different lengths, often as the 10 year rate minus the 3 month rate. When short term rates rise above long term rates, the curve is inverted, which has come before every US recession since the late 1960s, though not every inversion led to one.
Why it is usually positive
Lending money for ten years carries more uncertainty than lending for three months, so investors usually expect a higher rate on longer bonds.
What an inversion means
An inversion often happens when the central bank raises short term rates to slow the economy, while investors expect rates and growth to fall later. Every US recession since the late 1960s came after an inversion of the 10 year minus 3 month curve.
False alarms and timing
The signal is not perfect. The curve inverted in late 2022 and stayed inverted until late 2024, and no recession has followed so far. When recessions did follow past inversions, the gap ranged from several months to about two years.
Frequently asked questions
What does an inverted yield curve mean?
Short term government rates are higher than long term ones. It has often come before recessions, though not always.
Which yield curve does Stockslash use?
The gap between the 10 year and 3 month US Treasury rates.