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The yield curve: interest rates across maturities
· Concept
Fact, law or dataA rule, statute, definition or measured number.
The yield curve plots Treasury yields from one month to 30 years; its shape shows what markets expect for rates and growth.
See it on the Money & Finance map →How it works
Normally it slopes up: lenders want extra to tie money up longer, and that extra is the term premium. The short end sits near the fed funds rate. Longer yields reflect expected future short rates, inflation and the term premium. Analysts watch two spreads: 10-year minus 2-year and 10-year minus 3-month. A steep curve signals expected growth or inflation; a flat or inverted one signals expected rate cuts, often because a slowdown is coming.
Why it matters
Banks borrow short and lend long, so the slope drives their profit margin; it also frames whether borrowers choose floating or fixed rates.
Think of it like
Like a lender's rate sheet quoting 1-, 5- and 10-year fixed loans side by side; the curve is that sheet for the US government.
Facts, rules and data
The Treasury publishes the daily par yield curve; FRED charts the 10-year minus 2-year and 10-year minus 3-month spreads back to 1976 and 1982.
Debates and risks
How much of a long yield is term premium versus expected rates can't be observed directly; Fed models estimate it differently.
Inside this (2)
Connections (4)
▸The federal funds rate anchors the short end of The yield curve: interest rates across maturitiesFact, law or data
The connection
The Fed holds the overnight rate inside its target range, and one- to three-month Treasury bills trade close to it, since money funds can hold either. Further out, yields depend on where investors expect the Fed to go plus a term premium, so the Fed's grip loosens with maturity.
When and why
In 2022–23, hikes lifted three-month bill yields from near 0% to about 5.5% while 10-year yields rose less, inverting the curve.
How we know
The Treasury's daily yield curve and FRED data show bill yields moving almost one-for-one with fed funds, and long yields moving far less.
Debates and risks
After the Fed cut a full point in late 2024, the 10-year yield rose about a point. How much control the Fed has over long rates is debated.
▸The yield curve: interest rates across maturities can flip into Yield curve inversion as a recession warningFact, law or data
The connection
When the Fed raises short rates sharply while investors expect it to cut later, because growth or inflation will fall, short yields climb above long ones and the curve slopes down. Banks, which borrow short and lend long, then earn less on new loans and may tighten credit.
When and why
Notable inversions in 1978–80, 1989, 2000, 2006–07, 2019 and 2022–24, the last the longest on record.
How we know
Treasury yield data on FRED record each episode; Fed research tracks how often recessions followed.
Debates and risks
Whether inversion predicts recessions, helps cause them by squeezing bank lending, or simply mirrors Fed tightening is debated.
▸The yield curve: interest rates across maturities shapes the profit margin of Commercial banks: taking deposits, making loansMainstream view
The connection
Banks pay depositors short-term rates and lend at longer-term rates, so a steep curve, with long rates well above short ones, widens their margin. When the curve flattens or inverts, deposit costs climb toward loan yields, lending earns less, and credit tends to tighten.
When and why
Visible throughout US banking history; acute in 2022–24, when the curve stayed inverted for a record stretch.
How solid is the link?
Fed and FDIC research links net interest margins to the curve's slope, though banks hedge and reprice loans to soften the effect.
Debates and risks
The link is looser than often claimed: many loans float with short rates and deposit rates lag. How much the slope matters is debated.
▸Japanese government bonds (JGBs) after yield-curve control were capped by BOJ control of The yield curve: interest rates across maturitiesFact, law or data
The connection
From September 2016 the BOJ targeted a 10-year yield near 0%, promising to buy whatever bonds were needed to hold it there. It let the yield move in wider bands from 2018, loosening faster as inflation rose in 2022–23, then ended the policy in March 2024 with its first rate hike in 17 years.
When and why
Tokyo, September 21, 2016 to March 19, 2024.
How we know
BOJ policy statements and JGB yield records.
Debates and risks
How much the cap distorted Japan's bond market, and how long normal trading will take to return.