A leading indicator for economic cycles derived from bond yields.
The spread between 10-year and 2-year Treasury yields acts as a barometer for economic expectations. It compares the return on long-term capital versus short-term capital.
Calculated as the 10-Year Treasury Yield minus the 2-Year Treasury Yield. Positive values indicate a normal growth environment; negative values (inversion) suggest short-term monetary tightness relative to long-term growth expectations.
A steep positive curve (>100bps) suggests strong economic growth expectations.
A flat curve (0-50bps) often signals a transition between economic phases.
An inverted curve (<0bps) has reliably preceded economic contractions since 1955.
Yield curve inversions have been a reliable precursor to economic resets in 2001, 2008, and 2020, usually leading by 6-24 months.
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