Yield Curve
The yield curve is a line chart that plots the yields of bonds with equal credit quality, usually US Treasuries, across different maturities.
On the horizontal axis are maturities, from short-term bills to 30-year bonds; on the vertical axis are their yields. The shape of the line shows how much investors demand for lending money for longer periods.
A normal yield curve slopes upward: longer bonds pay higher yields to compensate for inflation and interest rate risk over time. A flat curve means short- and long-term yields are similar. An inverted curve, with short-term yields above long-term ones, has historically often come before recessions.
Short-term yields are heavily influenced by the Federal Reserve's policy rate, while long-term yields reflect expectations for growth, inflation and future rates. Analysts often follow the spread between the 10-year and 2-year Treasury, or between the 10-year and 3-month yields, to summarize the curve.
Example: if a 2-year Treasury yields 3.5% and a 10-year yields 4.5%, the 10-year minus 2-year spread is +1 percentage point, a normal upward slope.