Yield Curve Today — 10-Year minus 2-Year Treasury Spread

What is Yield Curve (10Y-2Y)?

The yield curve spread (FRED series T10Y2Y) is the difference between the 10-year and 2-year US Treasury yields, expressed in percentage points. In a normal economy, longer-term yields exceed shorter-term yields because investors demand extra compensation (term premium) for locking up capital and for the additional uncertainty over longer horizons. When this spread compresses toward zero or turns negative — an "inversion" — it signals that bond markets expect future short-term rates, and therefore future economic growth, to be lower than current rates. The 10Y-2Y spread has inverted before every US recession since 1955, with only one false positive in the mid-1960s, making it the most-watched recession indicator in financial markets. Typical lead time from inversion to recession is 6-24 months, though both the duration of inversion and the speed of normalization (the "steepening") carry information. A bull steepener (long yields rising) signals reflation; a bear steepener (short yields falling) typically signals the Fed cutting in response to weakness already showing up.

Why Yield Curve (10Y-2Y) matters for stocks

Yield curve inversions historically precede bear markets in equities, though the lag varies widely. Defensive sectors (utilities, staples, healthcare) and high-quality balance sheets tend to outperform after inversion, while cyclicals (industrials, materials, small caps) and credit-sensitive sectors lag. Banks are direct losers from a flat or inverted curve because their core business depends on borrowing short and lending long. Re-steepening — especially bull steepening triggered by Fed cuts — has historically marked the bottom of equity bear markets and the start of new cycles.

Other US macro indicators