Inverted yield curve: what the Treasury yield curve is and what an inversion signals

Education only, not financial advice. Figures come from official sources, each with its date; past market moves do not predict future ones. How we work

The yield curve is a line that plots the interest rates on US Treasury debt from the shortest maturities to the longest, and it is inverted when short-term rates are higher than long-term rates. An inverted yield curve has come before every US recession since the late 1970s, but it has also given false or early signals, and the longest inversion on record, from 2022 to 2024, had not been followed by a recession as of October 2026.

This guide explains how the curve is built, why it usually slopes upward, what happened in 2022-24, and how good the signal has been.

What is a yield curve?

A yield is the annual return an investor earns for holding a bond to maturity. The US Treasury borrows for periods from a few weeks to 30 years, and each maturity has its own yield. Draw those yields on a chart, with time to maturity on the horizontal axis, and you have the yield curve.

The Treasury publishes the official version every business day as the daily Treasury par yield curve. It covers maturities of 1, 1.5, 2, 3, 4 and 6 months and 1, 2, 3, 5, 7, 10, 20 and 30 years. The Treasury explains that the curve is "estimated daily using a monotone convex spline method," using indicative bid-side prices for the most recently auctioned securities. That lets it publish a yield for exact maturities, such as 10 years, even when no bond has exactly that much time left to run.

Source: US Department of the Treasury, daily par yield curve rates.

On that date the curve sloped upward, which is the normal shape. Investors usually want a higher yield to tie up their money for longer, because more can go wrong over 10 or 30 years: inflation can rise, and the price of a long bond moves more when interest rates change.

What is an inverted yield curve?

The curve is inverted when short-term yields rise above long-term yields. Since the whole curve rarely flips at once, people usually track one spread between two points:

• 10-year minus 2-year. The most quoted measure in markets. FRED publishes it daily as the series T10Y2Y, calculated from Treasury data, with figures from 1976.
• 10-year minus 3-month. The measure the Federal Reserve Bank of New York uses in its recession probability model.

When the spread is below zero, the curve is inverted on that measure.

Why does the yield curve invert?

Short-term Treasury yields follow the Federal Reserve's policy rate closely. Long-term yields reflect what investors expect short-term rates to average over many years, plus extra compensation for risk. So an inversion usually means the Fed has raised short-term rates and investors expect those rates to come down later, often because they expect the economy to slow and inflation to ease.

That was the pattern in 2022. The effective federal funds rate was 0.20% in March 2022 and reached 5.33% in August 2023, its highest level in the cycle. Two-year yields climbed with it, while 10-year yields rose less.

How long was the 2022-24 inversion?

By the 10-year minus 2-year measure, it was the longest unbroken inversion in the data since 1976. Figures computed from the FRED series T10Y2Y:

• First negative close: April 1, 2022 (-0.05 points), for two days.
• Then negative every trading day from July 6, 2022 to August 26, 2024: 537 trading days in a row.
• Deepest point: -1.08 points on July 3, 2023.
• Last negative close: September 5, 2024. In all there were 541 negative days in 2022-24.
• Latest reading: +0.47 points on October 5, 2026.

The next-longest unbroken runs were 423 trading days from August 18, 1978 to May 1, 1980; 220 days from February 11 to December 26, 2000; and 147 days from August 17, 2006 to March 20, 2007.

The 10-year minus 3-month spread told the same story. In the New York Fed's monthly data, its average was negative in 27 months between November 2022 and April 2025.

Has an inverted yield curve predicted past recessions?

Often, but with long and variable delays, and with misses. The table lines up each episode in the 10-year minus 2-year series with the next business-cycle peak dated by the National Bureau of Economic Research (NBER).

Sources: FRED series T10Y2Y (episodes grouped where negative closes were less than six months apart); NBER business cycle dates.

Three things stand out. Every recession in this period was preceded by an inversion. The lead time ranged from about 6 to 24 months, which is too wide to time anything. And two episodes are hard to count as clean hits: the short 1998 inversion was not followed by a recession for almost three years, and the three-day dip in August 2019 came before a recession whose trigger was the 2020 pandemic shutdowns, which no bond market could have foreseen.

What does the New York Fed's yield curve model say?

The New York Fed publishes a page called "The Yield Curve as a Leading Indicator." Its model "uses the slope of the yield curve, or 'term spread,' to calculate the probability of a recession in the United States twelve months ahead," with the spread defined as the 10-year minus the 3-month Treasury rate.

The bank's FAQ says the spread has "borne a consistent negative relationship with subsequent real economic activity," with a lead time of about four to six quarters, and that the yield curve has predicted essentially every US recession since 1950 with only one "false" signal, which came before the credit crunch and production slowdown of 1967. That record was written before the 2022-24 episode. In the model's data, the probability peaked at about 71% for May 2024, and the NBER has dated no recession for that period.

A model probability is a statistical summary of past relationships, published by the New York Fed and updated every month. This site does not forecast and does not interpret the current reading.

Why did the 2022-24 inversion not bring a recession?

There is no settled answer, and we do not offer one as fact. What the official data show is that the economy kept growing while the curve was inverted: the NBER has named no business-cycle peak after April 2020, unemployment was 3.4% in April 2023, in the middle of the inversion, and real GDP grew at a 2.2% annual rate in the second quarter of 2026. Some of the conditions of 2022 were unusual, including a surge of inflation after the pandemic and a very fast rise in the federal funds rate from near zero. Our pages on inflation after COVID and the COVID recession cover that background.

One more caution applies to every episode. The spread turning positive again has not, in past episodes, marked the end of the signal's relevance. In 2007 and 2000 the curve had already returned to a normal slope before the recession began.

How should you read the yield curve?

As one input. An inversion says bond investors expect lower short-term rates ahead; it says nothing exact about when, or whether, output and jobs will fall. Recessions are confirmed by data on employment, income, spending and production, the measures described in our guide to what a recession is. Stock prices have their own rhythm: the S&P 500's 2022 bear market began in January 2022, before the long inversion started, and ended in October 2022, while it was still running. If you are wondering what an inverted curve means for your own savings, that depends on your circumstances; the SEC's Investor.gov in the US and MoneyHelper in the UK are neutral starting points.

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