The Treasury yield curve explained
The Treasury yield curve is a chart of the interest rates on U.S. government debt, from one month out to thirty years, on a single day. It normally slopes upward because lenders want more for tying money up longer; when short-term rates rise above long-term rates the curve is said to be inverted, which has often come before a recession.
In brief
- The Treasury publishes the curve every business day.
- Points run from 1 month to 30 years.
- Upward slope is normal; flat or inverted is unusual.
- The two spreads people watch: 10-year minus 2-year, and 10-year minus 3-month.
- An inversion is a warning sign with a mixed record, not a timetable.
What is the yield curve?
The yield curve is a line through the yields of Treasury securities of different lengths on the same day. A yield is the annual return a buyer earns by holding the security to the end. Plot the one-month yield on the left and the thirty-year yield on the right, join the dots, and you have the curve.
The official version is the Treasury's daily par yield curve: fourteen points from 1 month to 30 years, worked out each afternoon from market prices of recently issued securities. They are estimates read off a fitted curve, not the result of any single auction.
What are bills, notes and bonds?
| Security | Length | How it pays |
|---|---|---|
| Treasury bills | 4 weeks to 52 weeks | Sold below face value; no interest payments |
| Treasury notes | 2, 3, 5, 7 and 10 years | Interest every six months |
| Treasury bonds | 20 and 30 years | Interest every six months |
All are backed by the U.S. government, which is why their yields are used as the baseline for every other interest rate, from mortgages to company loans.
Why does the curve usually slope upward?
Because time is risk. Someone lending for ten years faces a decade of possible inflation and rate changes and wants to be paid for it, so long yields normally sit above short ones.
The short end follows the Federal Reserve, which sets overnight rates. The long end follows what investors expect for growth and inflation over many years. The shape of the curve is the difference between those two views.
What is an inverted yield curve?
An inverted curve is one where short-term yields are higher than long-term yields. It tends to happen when the Federal Reserve has raised short rates sharply and investors expect it to cut them later, usually because they expect the economy to slow.
Two measures are standard. The 10-year minus 2-year spread is the common shorthand. The 10-year minus 3-month spread is the one used in Federal Reserve research on recessions; the Cleveland Fed publishes a model built on it. When either number is below zero, that part of the curve is inverted.
An inverted curve has come before each U.S. recession for decades, but it has also given false alarms, and the delay between inversion and recession has ranged from months to years. It describes what bond investors expect. It does not tell you what will happen or when.
How do I read the curve on this site?
The Treasury yields page shows today's curve against the curve a month ago, the two spreads with a note when either is inverted, a table of every maturity with its one-day, one-month and year-to-date change, and a playback of how the curve has moved over the past year. Changes are given in basis points: one basis point is one hundredth of a percentage point, so a move from 4.00% to 4.25% is 25 basis points.
The figures are the Treasury's own, updated each day after they are published.
Questions and answers
What is an inverted yield curve?
A yield curve is inverted when short-term Treasury yields are higher than long-term yields. The usual tests are the 10-year yield minus the 2-year, or minus the 3-month, falling below zero.
Does an inverted yield curve mean a recession is coming?
Not necessarily. Inversions have come before past U.S. recessions but have also given false alarms, and the gap between inversion and recession has varied from months to years.
What is a basis point?
A basis point is one hundredth of a percentage point. A yield that moves from 4.00% to 4.25% has risen 25 basis points.
Where do Treasury yield curve rates come from?
The Treasury publishes them every business day. They are estimated from late-afternoon market prices of recently issued Treasury securities, at fourteen maturities from 1 month to 30 years.
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Not investment advice. This guide explains public records and how this site presents them. It makes no recommendation to buy or sell anything. All guides · All questions · Report an error