10Yr - 2Yr Treasury Yield Spread

10yr and 2yr Treasury Yield Spread

The circle spread between the circle 10-year and the circle 2-year Treasury yields is often referred to as the yield curve.

Economists often give the spread between the 10-year and the 2-year special attention because inversions of that part of the curve have historically preceded every recession for more than 50 years.

Treasury yield spreads are the difference between the interest rates of short-term and long-term government bonds.

The latest value of all bonds rates make up the yield curve. Yield curve inversions occur when short-term bonds have a higher yield than long-term bonds. This has been one of the most successful predictors of economic recessions. By subtracting a shorter-maturity yield from a longer maturity yield, we can easily gauge the differences between the two.

Whenever the 10Y-2Y spread turns negative, then the yield on the long-term 10Y bond is lower than the yield of the short-term 2Y bond. This is a bearish sign where investors expect yields on longer-maturity bonds to become even lower in the future. In bearish times investors seeking safe investments tend to purchase these longer-dated bonds over short-dated bonds, bidding up the price of longer bonds and thereby further driving down their yield.