Yield curve inversion.
When short-term Treasury yields exceed long-term ones.
The 10/2 spread inverting has preceded most recent US recessions.
Why it matters: Resets credit pricing across the economy. Mortgages, corporate debt, bank margins all reprice.
Technical and plain English.
Yield curve inversion. A state in the US Treasury yield curve where short-duration yields exceed long-duration yields, reversing the normal upward-sloping term structure. Most commonly tracked: 2yr-10yr inversion. Also: 3M-10Y (more sensitive). Inversions historically signal bond market expectations of falling future short rates, typically driven by anticipated Fed easing in response to slowdown. Has preceded every US recession since 1955 with no false positives, average lag of 12-18 months.
Normally, if you lend the government money for 10 years, you get paid more interest than if you lend for 2 years. Because 10 years is riskier. When that flips and 2-year bonds pay more than 10-year, that's weird. It means bond markets think the Fed will cut rates soon, which usually means they expect a recession. This signal has called every recession since 1955. So when news mentions "the yield curve inverted," people pay attention.
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