A positive spread is normal and healthy. An inverted curve (negative spread) has historically preceded recessions within 12-18 months.
Formula
Spread = 10-Year Treasury Yield - 2-Year Treasury YieldMethodology
The yield curve shape reflects market expectations about future economic conditions and interest rates.
Normal (positive slope): Long-term rates > short-term rates. This is the typical state because: - Investors demand higher yields for longer-term uncertainty - Economy expected to grow, with higher future interest rates
Flat: Long-term and short-term rates similar. Indicates: - Uncertainty about economic direction - Potential transition period
Inverted (negative slope): Short-term rates > long-term rates. This is a recession warning because: - Markets expect Fed to cut rates in response to economic weakness - Every US recession since 1955 was preceded by an inversion - Typical lead time: 12-18 months before recession
The 10Y-2Y spread is the most watched measure, though other spreads (10Y-3M) are also tracked.
How to Interpret
| Range | Label | Meaning |
|---|---|---|
| ≥ 1.5 | Healthy | Normal upward-sloping curve - healthy growth expectations |
| 0 to 1.5 | Flattening | Curve flattening - growth expectations moderating |
| < 0 | Inverted | Inverted curve - historical recession warning signal |
Data Source
Treasury yields from FRED economic database (DGS10, DGS2 series).
Reference
Federal Reserve (2023). Yield Curve Analysis. Federal Reserve Economic Data (FRED)
Related Metrics
Check Market Sentiment
See how current market sentiment affects your portfolio holdings.
For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.