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Yield Curve
About This Indicator
What Is the Yield Curve?
What the government pays to borrow for ten years minus what it pays for three months, in percentage points, from the Federal Reserve. Lenders normally want extra for tying money up longer. When the ten-year pays less, the curve is inverted and the line goes negative.
Why Does It Matter?
It inverted five to sixteen months before each of the eight recessions from 1969 to 2020, and in 1966 with no recession. Banks borrow short and lend long, so when short rates top long ones, credit tends to tighten.
Can Politics Influence It?
The short end follows the independent Federal Reserve, the long end the bond market, where heavy federal borrowing adds supply. An administration can influence both but sets neither.
Key Idea
An inversion is the bond market betting short rates will fall, usually because it expects the Fed to cut into a slowdown. In 1990, 2001, and 2007 the curve was back above zero when the recession began, so a return to normal has not always been an all-clear.
Not Scored
Source: Computed here. The 10-year yield minus the 3-month bill (FRED GS10 and TB3MS).
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