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The Yield Curve as Recession Indicator

The yield curve spread measures the difference between long-term and short-term US Treasury yields, most commonly calculated as the 10-Year Treasury yield minus the 2-Year Treasury yield. This spread has inverted before every US recession since 1970.

Three states: Normal (positive spread, growth expectations), Inverted (negative spread, recession warning), Flat (transition state). The 2022-2023 inversion reached approximately -108 basis points in July 2023.

Re-steepening after inversion often signals that recession is imminent or underway, as the Fed begins cutting rates.

Yield Curve metric | Treasury 10Y | Macro Snapshot briefing

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