The Treasury Yield Curve
The curve plots what the US government pays to borrow across every maturity. Its level, its slope and its changes are the most watched picture in macro.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- The yield curve is yield plotted against maturity, from the 1-month bill to the 30-year bond.
- The short end tracks Federal Reserve policy; the long end reflects growth and inflation expectations.
- A normal curve slopes up; an inverted one slopes down and has historically preceded recessions.
- The shape matters more than the level, and the way it changes matters most of all.
- Because the issuer is identical across maturities, the curve isolates the price of time.
- Duration is a sensitivity rather than a maturity, and it applies to a company's future profits exactly as it does to a bond.
MAD Academy Training Video · 0:46
The Most Watched Line in Finance
The yield curve plots what the government pays to borrow across time, and its shape is a picture of what the market expects.
This lesson is part of a Stock Alerts + Tools plan.
What is being plotted
A Treasury security is issued across maturities from four weeks to thirty years. Plotting each one's yield against its maturity produces the curve. Because the issuer is the same throughout, the shape isolates the price of time rather than the price of credit, which is what makes it such a clean signal.
| Instrument | Maturity | Mostly reflects |
|---|---|---|
| Bills | 4 weeks to 1 year | The current policy rate and the next few meetings |
| Notes | 2 to 10 years | The expected path of policy over the cycle |
| Bonds | 20 to 30 years | Long-run growth, inflation and demand for duration |
The 10-year note is the reference point for most of the rest of finance. Mortgage rates, corporate borrowing costs and the discount rate in most valuation work are all quoted or derived relative to it.
Normal, flat and inverted
Lenders usually want more to commit money for ten years than for three months, so the curve normally slopes upward. That extra compensation is a term premium: payment for bearing the uncertainty of what happens over a longer horizon.
A flat curve says that premium has disappeared. An inverted yield curve says short maturities yield more than long ones, which happens when the market expects policy rates to be materially lower in future than they are now.
Scroll the chart sideways to see all of it.
- Normal
- Flat
- Inverted
Inversion is a statement about expectations, not a mechanism. It says the market believes rates will have to come down, which usually implies a weakening economy. It is descriptive, and its historical record as a leading indicator comes with long and variable lags.
The spreads people quote
- 10-year minus 2-year: the classic recession spread, the one most often cited as the curve.
- 10-year minus 3-month: preferred in much of the academic literature on forecasting.
- 30-year minus 5-year: a read on long-run inflation expectations rather than the cycle.
- 2-year minus the federal funds rate: how much easing or tightening the market has already priced.
The last of those is the most immediately useful and the least quoted. A 2-year note yielding well below the current policy rate is the market saying cuts are coming, in a way that requires no interpretation at all.
How it moves
- 1Bull steepeningShort yields fall faster than long ones. Typically an easing cycle being priced in.
- 2Bear steepeningLong yields rise faster than short ones. Growth or inflation expectations rising.
- 3Bull flatteningLong yields fall faster than short ones. Growth expectations deteriorating.
- 4Bear flatteningShort yields rise faster than long ones. Tightening being priced in.
The vocabulary is worth learning because the four movements carry genuinely different information, and reporting that says only rates rose has discarded most of it. Bull and bear here refer to the bond, so bull means yields falling and prices rising.
Treasury yields across the curve, with day, week, month, year and five-year comparison windows.
The live curvePrice and yield move opposite ways
A bond pays fixed amounts on fixed dates. Its price is what the market will pay for that stream today, and its yield is the return implied by that price. Since the payments are fixed, a higher price necessarily means a lower return, which is the whole of the inverse relationship.
approximate price change = -duration x change in yield
- duration is measured in years and is a sensitivity rather than a maturity
- a bond with duration 8 falls roughly 8 percent when its yield rises 1 percentage point
Duration is the reason a long bond and a short one respond so differently to the same move in rates. A two-year note has a duration under two, so a percentage point costs it under two percent; a thirty-year bond can have a duration near twenty, and the same move costs it a fifth of its value.
This is also the link to equities. Duration applies to any stream of future cash flows, so a company whose profits are expected far in the future has a long duration in exactly the same sense and responds to rates the same way.
What moves the curve, and where
Different parts of the curve respond to different things, which is why the shape changes rather than the whole curve moving together.
| Part of the curve | Principally driven by |
|---|---|
| Under 2 years | The current policy rate and expectations over that horizon |
| 2 to 10 years | The expected path of policy, and growth expectations |
| 10 years and beyond | Long-run inflation expectations and the term premium |
The term premium in the last row is the extra yield demanded for holding a longer maturity, and it is not directly observable: it is estimated as the residual after expectations are accounted for. It fell substantially during the years of large-scale central bank purchases, which is part of why curve signals from that period are argued about.
Movements are conventionally described in two families. A parallel shift moves the whole curve; a steepening or flattening changes the gap between two points, and it is further split by whether the short end or the long end did the moving.