The Yield Curve
Compare maturity nodes with matched date, issuer, currency and yield conventions; calculate 10Y−2Y in percentage points and basis points.
Question, try, then observe
What did you just see?
Two-year 4.2% and ten-year 3.8% give −0.4 percentage points, or −40 bps. A lower long yield can reflect expected future short-rate declines and changing term premiums, not today's policy rate alone.
Upward, flat and inverted
An upward slope has higher yields at longer maturities; flat means similar yields across the compared maturities; inversion has lower yields at longer maturities over a segment. 10Y−2Y summarizes one segment rather than the entire curve. US Treasury constant-maturity data use a dedicated estimation method; connecting a few hypothetical nodes does not reproduce the complete market curve or tradable quotes.
Why can long yields fall below short yields?
Long yields relate to expected future short rates and term premiums. Expected future policy easing can pull long yields below high current short yields. Inflation uncertainty, demand and supply for long assets, and risk preferences can change term premiums. Several forces act together; inversion is not the mechanical result of one cause.
A historical signal is not a recession guarantee
Several US term spreads have historically been associated with subsequent recessions, with research using different short maturities and observation windows. Negative 10Y−2Y establishes inversion between those nodes, not an inevitable recession or a precise date. Policy, term premiums and sample periods can change the signal. This interaction estimates no recession probability.
One bond's price versus yields across maturities
A fixed-cash-flow bond's price generally moves inversely with its own yield; a curve instead compares maturities at one time. Inversion does not mean all bond prices are falling. YTM summarizes cash-flow discounting, and duration describes a bond's price sensitivity to yield changes, complementing this maturity comparison.
Another example
- Match date, issuer, currency and yield conventions before entering four nodes.
- Subtract 2Y 4.2 from 10Y 3.8 for −0.4 pp.
- One percentage point is 100 bps, giving −40 bps; the connecting lines are illustrative only.
Show formal definition and formula
A yield curve places comparable debt yields against their different maturities. The ten-year minus two-year spread measures the relative level between those two maturities.
Ten-year minus two-year spread
Percentage points to basis points
A yield curve places comparable debt yields against their different maturities. The ten-year minus two-year spread measures the relative level between those two maturities.
- y2
- Two-year yield (percentage number)
- y10
- Ten-year yield (percentage number)
- spp
- 10Y−2Y, percentage points
- sbps
- 10Y−2Y, basis points
- Units
- Yields are percentage numbers: 4.2 means 4.2%. Their difference is percentage points; 1 pp equals 100 bps.
Common mistakes
−0.4 pp is not −0.4 bps or a relative percentage change. Inversion does not guarantee recession, and a four-node line is not a precise full yield curve.
Frequently asked questions
Can I mix dates or corporate bonds?
Not as one comparable government curve: dates, issuer credit risk, currencies and yield conventions can create differences.
You can now explore…
- Read term spreads in percentage points and basis points
- Separate inversion, bond prices and recession risk
Term reference1 terms
Open a term when you need a reminder. Underlined words in the article work too.