MEASURED BY HELIOUS
2s10s +45bp
as of close · live on the rates board
Yield Curve Inversion
A yield curve inversion is when short-dated Treasury yields sit above long-dated ones, most often measured as the 2s10s spread turning negative. That is backwards. Investors normally want extra yield for lending longer, so an inverted curve says the market expects short rates to fall a long way, which historically has meant a Fed cutting into a weakening economy.
An inverted 2s10s or 3-month/10-year curve has come before every US recession of the past half century, usually 6 to 24 months ahead. When the curve first flips, the market is starting to price a policy mistake, or a Fed that has tightened too far this late in the cycle. How far below zero the spread goes matters too. A curve at -100bp is pricing far more cutting than one that has only just dipped below zero.
Recessions have usually arrived after the curve un-inverts, with the Fed cutting hard at the front end. It looks like good news and it is usually the opposite.
Say the 2-year is at 4.80% and the 10-year at 4.10%, so 2s10s is inverted at -70bp. Eight months later weak payrolls push the Fed toward cuts. The 2-year collapses to 4.05% while the 10-year holds 4.15%, and the curve un-inverts to +10bp. The front end has fallen faster than the long end, which is a bull steepening, and history says that is the moment to get more careful.
On the Helious desk right now
FAQ
Is the yield curve inverted right now?
Helious shows the live 2s10s level and the current curve regime on the rates board, with the time it last flipped. An inversion is just a negative 2s10s, the 2-year yielding more than the 10-year.
Does an inverted yield curve mean a recession is coming?
It has come before most US recessions, but the lead has run from months to well over two years, and the curve has also un-inverted before the recession arrived. It tells you what the market expects policy to do. It is not a timetable. Read it next to the incoming data, which is scored release by release on the data hub.
Why does the yield curve invert?
Because the front end is pricing a policy rate that ends up lower than today's, usually when the Fed is fighting inflation hard enough to slow growth. The 2-year tracks where the market thinks the Fed is going, so it sits above the 10-year when traders expect today's tightness to be temporary.