The Yield Curve:The Basics
A "yield" is the return on an investment in a bond.
A "yield curve" is a comparison between long-term and short-term bonds that depicts the relationship between their rates of interest. The rate for a longer-term bond is usually higher than the rate for a shorter-term bond. This is because of the term premium, which reflects the amount investors expect to be compensated for lending for longer periods.
A "yield curve inversion" is when the rate for a longer-term bond is lower than the rate for a shorter-term bond.
These inversions have occurred before all U.S. recessions (and recessions in other countries as well) for the past 50 years.
![What Is the Yield Curve? (1) What Is the Yield Curve? (1)](https://i0.wp.com/research.stlouisfed.org/publications/images/uploads/2020/fredgraph_20201221033243.png)
This FRED graph shows the most common "yield curve": the relationship between the 10-year Treasury note at constant maturity and the 2-year Treasury note at constant maturity.
Read more research on the yield curve here.