Yield Curve
Interest rate snapshot that predicts economic turning points
Definition
The yield curve is a graph that plots interest rates of bonds with equal credit quality but different maturity dates, typically for U.S. Treasury bonds. A normal (upward-sloping) yield curve shows longer-term bonds yielding more than short-term ones. An inverted yield curve — where short-term yields exceed long-term — is considered a reliable recession predictor. Options traders monitor the yield curve because it signals risk sentiment and Fed policy direction.
Example
When the 2-year Treasury yield rises above the 10-year yield, the yield curve inverts. This signal preceded every U.S. recession since 1955. In 2022-2023, the curve inverted significantly, with the 2-year yielding over 5% vs the 10-year at 3.7%.
Related Terms
Frequently Asked Question
What is the yield curve?
The yield curve plots Treasury bond yields across maturities. When short-term yields exceed long-term yields, it inverts — historically a recession warning signal that options traders watch closely.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.