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MarketsExplainerPast Article

A Flat Curve Is a Description

When the ten-year yield sits near the two-year, you have a fact about two prices. You do not yet have a recession.

By Nadine Okonkwo, Global Macro Correspondent

New York1 min read

a tall building with columns and statues on the side of it
a tall building with columns and statues on the side of itPhoto by Francesco Ungaro on Unsplash

The slope of the Treasury curve is the ten-year par yield minus the two-year par yield, or whichever pair you named. If both numbers are published for the same day, the difference is simple arithmetic, and it matters which pair is used.

A negative slope has preceded some American recessions and has also cried wolf. The historical pattern is a reason economists watch the slope. It is not a trigger that fires on the day the line crosses zero.

What the slope does say, narrowly, is how the market is pricing the near path against the long one. A two-year yield close to the ten-year yield means those two horizons are being paid similarly. That is a description of prices.

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