US Treasury Yield Curve

What is the Yield Curve?

The yield curve plots the interest rates (yields) of bonds with equal credit quality but different maturity dates. Its shape is one of the most powerful indicators of economic health, future interest rate expectations, and market sentiment.

How to Interpret the Charts

• Yield Curve Shape: A "normal" curve is upward sloping, as longer-term bonds typically carry higher yields to compensate for longer-term risk. A "flat" or "inverted" curve—where short-term yields exceed long-term yields—has historically preceded recessions.
• Spreads (10Y-2Y, 10Y-3M): These isolate the difference between key long-term and short-term yields. When the spread drops below zero, the curve is inverted, signaling elevated economic risk.
• High-Yield Credit Spread: This reflects the extra yield investors demand for holding riskier corporate debt. Rising spreads suggest deteriorating credit conditions and risk-off sentiment.

Practical Applications

• Assess the market's long-term economic outlook to inform asset allocation.
• Anticipate potential shifts in Federal Reserve policy, as the Fed often cuts rates following prolonged inversions.
• Gauge overall “risk-on” or “risk-off” sentiment in credit markets.