Fixed Income
What is Yield Curve?
The yield curve plots interest rates of bonds with equal credit quality across different maturities, its shape signals market expectations about the economy.
Formula
Plot: X-axis = bond maturity (3M to 30Y), Y-axis = yield. Normal = upward sloping.
How to Interpret
Normal (upward) = healthy economy. Inverted (downward) = recession warning. Flat = uncertainty. The yield curve is one of the most reliable recession predictors.
Typical Ranges
Normal spread (10Y - 2Y): 1-2.5%. Inversion has preceded every US recession since 1970.