The 10-year yield minus the 2-year yield. When it drops below zero — an 'inversion' — it has preceded nearly every US recession of the past 50 years by 12–24 months.
The yield curve spread is the US 10-year Treasury yield minus the 2-year Treasury yield. When it falls below zero — a 'yield curve inversion' — it has historically led recessions by 12–24 months, making it one of the most-watched leading indicators.
The yield curve spread is the difference between Treasury yields at different maturities, most commonly the 10-year yield minus the 2-year yield. The 10-year minus 3-month spread is another widely studied version, particularly in academic recession models. It is a market-based indicator computed directly from Treasury yields in real time, with no separate publishing agency. The spread condenses the slope of the yield curve into a single number that reflects the market's economic outlook.
In a healthy economy longer maturities yield more than shorter ones, keeping the spread positive. When short-term yields rise above long-term yields the spread turns negative, a condition called yield curve inversion, which has historically preceded U.S. recessions with a strong track record. Inversions typically occur when central bank rate hikes push short-term yields up while the market prices in future economic slowdown and rate cuts. The lag between inversion and recession has ranged from several months to more than two years, and the re-steepening that follows an inversion is sometimes read as the more imminent warning.
An inversion tends to raise recession alertness and foster a defensive market tone, though equities have sometimes continued rising for extended periods after inverting, so it is not an immediate sell signal by itself. Banks, which borrow short and lend long, face margin pressure when the curve flattens or inverts. When the curve re-steepens, the interpretation depends on whether falling short rates (rate-cut expectations) or rising long rates are driving it. Cross-checking with the unemployment rate, credit spreads, and leading economic indicators helps validate any recession signal.