What it means
The yield curve plots interest rates against maturity for bonds of equivalent credit quality, typically U.S. Treasuries. Normally slopes upward (longer = more yield). When it inverts (short rates higher than long rates), it's historically been one of the most reliable recession predictors.
Why it matters
The 2y-10y spread inverted before every U.S. recession in the last 50 years. The shape of the curve compresses information about growth expectations, inflation expectations, term premium and Fed policy into one chart.
How to use it
Watch the 2y-10y, 3m-10y and 5y-30y spreads. Sustained inversions (>3 months) of the 3m-10y are the highest-signal version. Shape changes (steepening vs flattening) matter as much as the level.
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