Finance
Yield Curve
Definition
A graph showing the relationship between bond yields and their maturities, typically for government bonds. A normal curve slopes upward; an inverted curve signals recession risk.
Explanation
When short-term rates exceed long-term rates (inversion), it historically precedes recessions with high accuracy — the 2/10 spread (2-year vs 10-year Treasury) has inverted before every US recession since 1955. The yield curve reflects market expectations for growth, inflation, and central bank policy. A steep curve suggests optimism; a flat or inverted curve suggests caution.