Yield curve spread (the basics)

The yield curve plots what the US government pays to borrow at each maturity — 2 years, 10 years, 30 years. A spread like 2s/30s (Bloomberg ticker USYC2Y30) compresses the curve into one number: long yield minus short yield, quoted in basis points.

• Spread > 0 (normal): long bonds yield more than short ones. That’s the healthy default — lenders demand extra compensation (“term premium”) for locking money up longer and bearing more inflation risk.
• Spread < 0 (inverted): short bonds yield more than long ones. Upside-down — it means the market expects rates to be cut, i.e. the Fed has pushed short rates high and trouble is expected ahead. Inversion is the classic recession warning: the 2s/10s curve inverted before every US recession of the last decades (with a famous habit of the recession arriving only after the curve un-inverts).

Movements have names: widening = steepening, narrowing = flattening. Which leg moved matters more than the direction — see Curve steepener (2s/30s).

Related

• Curve steepener (2s/30s)
• Bond vigilantes