Reading the yield curve as a recession signal

The 10-year Treasury yield minus the 2-year yield is one number, and it has gone negative before every US recession since the 1970s. Negative means the curve is inverted: the 2-year is paying more than the 10-year, which is backwards. That is why the line gets read ahead of GDP or the jobs report. It moves the instant expectations change, while the slower series move only once a slowdown is already underway.

I keep this on live data. See it on the economy dashboard, next to unemployment, inflation, and the fed funds rate, or open the interactive version with a time-range toggle. This is the short reading guide.

What the spread is

• A Treasury yield is the return the government pays to borrow for a given term. Normally you get paid more to lend for longer, so the 10-year sits above the 2-year and the spread is positive.
• The spread is just that gap: (10-year yield) - (2-year yield).
• When it turns negative, the 2-year is paying more than the 10-year. The curve is inverted, and that is the moment worth watching.

Why an inversion means something

• Investors accept a lower return to lock money up for a decade than for two years only when they expect short-term rates to be lower in the future.
• Short rates fall when the Fed cuts, and the Fed cuts when the economy is weakening. So an inversion is the bond market pricing in a slowdown before it shows up elsewhere.
• It is not a mechanical cause of a recession. It leads because yields move the instant expectations change, while GDP and unemployment move only once the slowdown is already underway.

How to read it without overreading it

• Lead indicator, not a timer. The curve has inverted a year or more before recessions began. It says risk is rising, not which month it arrives. "Inverted, so recession now" is the common mistake.
• The crossing matters more than the wiggle. Small moves around a positive spread are noise. The signal is the sign change: the line crossing below zero, and how deep and how long it stays there.
• No single indicator is a forecast. The yield curve belongs in a dashboard next to labor, credit, and consumer data. An excellent record is not an infallible one.

How I built the live version

• A small script pulls the 10-year and 2-year constant-maturity Treasury yields straight from the Federal Reserve's public FRED endpoint. No API key, no vendor data, nothing to license.
• It computes the monthly spread and writes a plain JSON file.
• The page draws that JSON with a hand-rolled SVG chart, so the whole site stays a static export with a strict content-security policy and no third-party runtime.
• The recession bands are the official NBER business-cycle dates, so the pattern you match against is the record, not my judgment.
• The point: the data is real, it re-pulls when I refresh it, and a published chart cannot quietly go stale.

Key takeaways

• The single number to watch is the 10-year Treasury yield minus the 2-year, and it has gone negative before every US recession since the 1970s.
• An inverted curve does not cause a recession. It is the bond market pricing in a slowdown before it shows up in slower-moving data like GDP and unemployment.
• Treat it as a lead indicator, not a timer. The signal is the sign change (the spread crossing below zero), not small moves around a positive spread.
• No single indicator is a forecast. The yield curve earns its place in a dashboard next to labor, credit, and consumer data, not on its own.
• The live chart pulls real FRED data on refresh, with no backend and no charting library, so it cannot quietly go stale.

See it live

• The live economy dashboard puts the yield curve next to unemployment, inflation, and the fed funds rate.
• The interactive chart lets you toggle the time range and read the pattern yourself.