GlossaryUS government bonds (yield curve)
US government bonds (yield curve)
The complete US yield curve in one pane: eleven maturities from one month to thirty years, each as its own line, colored from short to long. The bold line is the ten-year yield, the benchmark that mortgages, corporate bonds and valuations align with.
How to read it
The order is the message. Normally the long maturities sit on top and the short ones below: investors who tie up their money for longer demand more interest. If short maturities sit above long ones, the curve is inverted. The market then expects policy rates to fall, usually because of an expected slowdown.
Two gaps are watched especially closely: the ten-year minus the two-year yield and the ten-year minus the three-month yield. Both are in percentage points; one percentage point is 100 basis points. The markets quote the first as a measure of the curve's shape, the second is what the Fed itself uses as a recession indicator. Both were negative before every US recession of the past decades, with a lead of many months. The recession usually only began after the curve had turned positive again.
- Short end (1M to 1Y): closely follows the policy rate and expectations for the next rate decisions.
- Middle section (2Y to 7Y): reflects the expected rate path of the next few years.
- Long end (10Y to 30Y): contains growth and inflation expectations and a premium for the risk of a long commitment.
If the lines move apart, the curve gets steeper; if they converge, it gets flatter.
Good to know
- Gap at 20 years: Between early 1987 and fall 1993, there was no 20-year quote. In this section, the line stays on the last value from late 1986.
- Different starts: Not all maturities go back equally far. The one-month starts in 2001, the two-year in 1976, the ten-year in 1962. Further left, the younger lines are missing.
- All eleven or none: If a maturity is missing, the pane stays empty. A curve with a hole in the middle would invite exactly the wrong conclusions it otherwise helps you avoid.
- Timeframe: Intended for 1D, 4D and 1W.
- Lines only: The study does not draw the gaps between the maturities as a separate curve. For the ratio of the ten-year to the two-year yield with zones, there is the “Yield curve” study.