Reading Yield Curves: What the Bond Market Signals About the Economy
The yield curve — a plot of interest rates across bonds of different maturities but similar credit quality — is one of the most closely watched indicators in macroeconomic analysis, and for good reason. Its shape encodes market expectations about future growth, inflation, and monetary policy in a way few other single indicators can match. Under normal economic conditions, the yield curve slopes upward: longer-dated bonds carry higher yields than shorter-dated ones, compensating investors for the added risk and uncertainty of tying up capital over a longer period. This is the baseline expectation in a stable, growing economy. When short-term yields rise above long-term yields — a phenomenon known as yield curve inversion — it typically signals that investors expect the central bank to cut rates in the future, usually in response to an anticipated economic slowdown. The 2-year/10-year Treasury spread has historically been one of the most reliable recession indicators in the U.S. ma...