Yield Curve Inversion
Short-term yields exceeding long-term yields - a recession signal.
What is Yield Curve Inversion?
Historically one of the more reliable recession precursors, typically leading by six to twenty-four months. It signals that markets expect future rate cuts in response to weakening growth. Reliable in direction, unreliable in timing.
Yield Curve Inversion: a worked example
The 2s10s spread inverted in 2022, roughly two years before markets debated whether it had 'failed'.
More terms in Macro & Markets
Inflation
A general rise in prices that erodes purchasing power.
Real vs. Nominal Return
Return after inflation versus the headline number.
Federal Funds Rate
The overnight interbank lending rate targeted by the Fed.
Monetary vs. Fiscal Policy
Central bank rate and money supply tools versus government tax and spending.
Yield Curve
A plot of Treasury yields across maturities.
Recession
A significant, broad, sustained decline in economic activity.
Quantitative Easing
Central bank purchases of long-dated assets to push down long rates.
Gross Domestic Product (GDP)
The total value of goods and services produced in an economy.