The Treasury yield curve plots the yield on US government debt against how long that debt has until it matures, from one month out to thirty years. It's one line on a chart, but it summarises what the bond market expects from growth, inflation and the Federal Reserve.
What the axes mean
The horizontal axis is maturity, how long until the bond pays back its principal. The vertical axis is yield, the annual return you'd earn by buying at today's price and holding to maturity.
Each point is a separate market. Short maturities move with expectations for the Fed's policy rate over the next few meetings. Long maturities reflect a much slower mix of expected growth, inflation and the extra return investors want for tying money up for decades.
The three shapes
Normal
Longer maturities yield more than shorter ones, so the curve slopes upward. This is the usual state of things: lending for longer carries more risk, and investors are paid for it.
Flat
Short and long yields sit close together. A flattening curve often means markets expect the Fed to stay tight while longer-term growth expectations fade.
Inverted
Short maturities yield more than long ones. An inverted curve says markets expect rates to fall in the future, often because they expect the economy to slow. Inversions have preceded many past US recessions, though the lag between the two has varied widely.
A single inversion is a signal worth watching, not a forecast. What matters is how long it lasts and what the rest of the data says.
Three things to check each morning
- The level. Did the whole curve move up or down since yesterday? A parallel shift usually points to a broad change in rate expectations.
- The slope. Compare the 2-year and 10-year yields. The gap between them, often called 2s10s, is the most quoted measure of whether the curve is steepening or flattening.
- The front end. Watch the shortest maturities around Fed meetings. They react first when expectations for the next move change.
In Ledington, YC plots today's curve against a previous reading so the change is visible at a glance. SOFR and CB sit alongside it for funding rates and policy rates at other central banks.
Why it matters beyond bonds
Treasury yields are the base rate the rest of finance prices from. Mortgage rates, corporate borrowing costs and the discount rate analysts use to value stocks all start from the curve. When it moves, almost everything else is repriced against it.