How to read the yield curve

What the yield curve is, why an "inverted" curve has so often come before recessions, which spreads to watch, and why the signal is not infallible.

The yield curve is simply the interest rates the US government pays to borrow for different lengths of time, lined up from shortest to longest: three months, two years, ten years, thirty years. Plot them and you get a line, the curve.

The normal shape

Usually the curve slopes upward: lending for ten years pays more than lending for three months. Investors want extra return for tying their money up longer, and they normally expect the economy to grow and interest rates to stay steady or rise over time.

When it turns upside down

Sometimes short-term rates rise above long-term rates. The curve is then inverted. This tends to happen when the Federal Reserve has raised short-term rates to cool the economy, while investors expect that slower growth will force rates back down later, so they accept lower long-term yields.

Two gaps, or "spreads", are watched most:

10-year minus 3-month, currently 0.88% for October 19, 2026. Research at the Federal Reserve Bank of New York has found it the most reliable for predicting recessions.
10-year minus 2-year, currently 0.38% for October 19, 2026. Popular in financial markets.

A negative number means the curve is inverted.

What the record shows

Since the late 1960s, every US recession has been preceded by an inversion of the 10-year minus 3-month spread, usually by somewhere between six months and two years. That long lead time is what makes the curve valuable: unlike most recession signals, it can turn before the economy does.

Why it is not a sure thing

The timing is loose. A lead of anywhere from six months to two years is too wide to plan around precisely.
It has given false or delayed signals. The curve inverted deeply in 2022 and stayed inverted for about two years without a recession following on the usual schedule.
The end of an inversion matters too. In the past the curve has often turned positive again shortly before or as a recession began, as the Fed cut short-term rates.

So an inverted curve is a reason for caution, not a forecast with a date.

On this site

The site's recession watch counts the curve as a warning once the 10-year minus 3-month spread has been below zero for ten trading days in a row, and clears it after ten days back above 0.10, so that brief dips do not switch it on and off. The individual yields are on the interest rates pillar: the 10-year yield is 5.15% for October 19, 2026 and the 2-year yield is 4.77% for October 19, 2026. See also interest rates and the Fed.