Glossary · Bonds and rates
Inverted yield curve
An inverted yield curve is when short-term interest rates are higher than long-term ones, an unusual state that has often come before US recessions.
Also called: yield curve inversion, inverted curve, negative yield spread
November 10, 2026. Below zero means inverted.
Out of 10 US recessions since 1955.
Since 1953, monthly averages.
In plain words
Normally, lending for 10 years pays more than lending for 3 months: you are tying your money up for longer. Sometimes the order flips and the short loan pays more. Plot the rates and the yield curve slopes down instead of up: it is inverted.
Why would anyone lock in a lower rate for 10 years? Because they expect short rates to fall, usually because they think the economy will weaken and the central bank will cut. An inversion is the bond market betting on a slowdown.
The bet has often been right. Since 1955, 8 of the 10 US recessions began within two years after the 10-year Treasury yield fell below the 3-month yield. Now the 10-year yield is 0.68 percentage points above the 3-month one (November 10, 2026).
Example
Spotting an inversion
- 3-month Treasury bill: 5.2%. 10-year Treasury note: 4.0%.
- Spread: 4.0% − 5.2% = −1.2 points. Below zero: the curve is inverted.
- A bank that pays depositors about the short rate and lends for years at about the long rate sees its margin squeezed, and lends less freely.
- Investors accept 4.0% for 10 years because they expect the 3-month rate to fall well below that in the years ahead.
The longest inversion in these data ran 2 years, from Nov 2022 to Nov 2024, and no recession followed within two years.
One level deeper
Economists watch two versions: the 10-year yield minus the 3-month bill yield, favored by researchers at the New York Fed, and the 10-year minus the 2-year yield, popular on Wall Street. They usually invert around the same time. The link to recessions was documented in the 1980s by the economist Campbell Harvey.
An inversion is a warning, not a timer. Before the recessions it did precede, the first inversion came between 6 months and 17 months ahead. There were false alarms too: since 1953 there were 3 inversions with no recession in the following two years. The deepest inversion in monthly averages was −3.51 points, in Dec 1980.
Why might it work? A curve usually inverts after the Fed has pushed short rates up to fight inflation. High short rates squeeze banks, slow borrowing and, with a lag, the economy. And the inversion itself shows that investors expect weaker times ahead.
The 10-year minus 3-month Treasury spread since 1953
Above zero, the curve slopes up as usual; below zero, it is inverted. The shaded bands are recessions: most of them came after the line dipped below zero.
The numbers behind the chart
| Date | 10-year minus 3-month yield |
|---|---|
| Apr 1953 | 0.6% |
| Dec 1960 | 1.6% |
| Dec 1970 | 1.4% |
| Dec 1980 | −3.5% |
| Dec 1990 | 1.1% |
| Dec 2000 | −0.7% |
| Dec 2010 | 3.1% |
| Dec 2020 | 0.8% |
| Dec 2022 | −0.7% |
| Dec 2023 | −1.4% |
| Dec 2024 | 0.0% |
| Dec 2025 | 0.5% |
| Nov 2026 | 0.7% |
Why it matters
It is one of the few recession signals with a long record, so markets, the Fed and the press watch it closely.
It changes the sums for savers: while it lasts, short T-bills pay more than long bonds.
It squeezes banks that fund themselves short and lend long, which can tighten credit for everyone.
A common mistake
Myth: An inverted yield curve causes recessions, and one always follows.
In fact: It is a signal, not a cause, and not a sure one. Since 1953 there were 3 inversions with no recession within two years, and the lead before the recessions that did follow varied a lot.
Questions people ask
Is the yield curve inverted now?
On November 10, 2026 the 10-year Treasury yield was 4.98% and the 3-month yield 4.30%: the curve was upward-sloping by this measure. The 10-year minus 2-year spread was +0.25 points.
How long after an inversion does a recession start?
Before the US recessions since 1955 that an inversion preceded, the curve first inverted between 6 months and 17 months earlier. The lead is too variable to time anything with.
Which spread is better: 10-year minus 3-month or minus 2-year?
Both measure the slope. The 3-month bill reflects the Fed’s rate now; the 2-year yield reflects where markets expect it over two years. Researchers often find the 3-month version a slightly better predictor; traders quote the 2-year one more often.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US Treasury par yield curve rates: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates (Interest Rate Statistics).
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- An inversion here is a run of months with the 10-year minus 3-month spread below zero; runs with at most two positive months between them count as one. “Followed by a recession” means an NBER recession began within 24 months of the inversion’s first month. Recessions are counted from 1955, two years after the spread data begin.
- This page explains a term. It is not investment advice.