On 5 October 2026, a 30-year US government bond paid a yearly return of 5.66%. A one-month loan to the same government paid 4.05%. That yearly return is called the yield. Plot the yields from the shortest loan to the longest. The line that joins them is the yield curve.
On that date, the US curve sloped upward, which is its normal shape. In July 2023, it sloped the other way. Here is how to read the curve, what its three main shapes look like and what the slope has signalled since 1976.
What is the yield curve? The yield curve is a line joining the yearly returns, or yields, on a government's bonds, from the shortest loan to the longest. In the US, it runs from one month to 30 years.
A normal curve slopes upward, because longer loans pay more. A flat curve pays about the same for every length of loan. On 24 March 2006, every US Treasury from one month to 30 years yielded between 4.65% and 4.78%.
An inverted curve slopes down, because shorter loans pay more than longer ones. On 3 July 2023, the 2-year yield was 1.08 percentage points above the 10-year. That was the deepest inversion since 1981.
A quick summary of the slope is the 10-year yield minus the 2-year yield. On 5 October 2026, the 10-year paid 5.31% and the 2-year 4.84%, a gap of 0.47 points. Below zero, the curve is inverted.
What the yield curve shows
The US government borrows by selling bonds called Treasuries. Those repaid within a year are called bills. Notes are repaid after 2 to 10 years, while bonds run for 20 or 30 years. The time left until a Treasury is repaid is its maturity.
A Treasury's yield is the yearly return a buyer gets at today's price. Our guide to Bond Prices and Yields shows why yields rise when prices fall.
To draw the curve, put maturity along the bottom and yield up the side. Each dot is one maturity.
Source: US Treasury; YX Insights
The chart shows the US curve on 5 October 2026, from the US Treasury's daily yields. It rises from 4.05% for one month to 4.84% for two years. The 10-year yield was 5.31%. The 30-year yield was 5.66%. Each dot gets the same space along the bottom, whatever the gap in years. So the 20 years from the 10-year to the 30-year take up no more room than the step from one year to two.
Normal, flat and inverted yield curves
The curve takes three main shapes. On each of the three dates below, the Fed was doing something different with its rate.
Source: FRED (DGS1MO to DGS30); YX Insights
The chart shows the US curve on three dates, one for each shape:
Normal (steep): on 4 February 2011, the curve ran from 0.13% for one month to 4.73% for 30 years. After the 2008 crisis, the Federal Reserve (the Fed) held its target for the Fed Funds Rate, the overnight rate banks charge each other, at 0% to 0.25%. The 10-year yield was 2.91 percentage points above the 2-year. That is the widest gap in the data, which begins in 1976.
Flat: on 24 March 2006, every maturity yielded between 4.65% and 4.78%. The Fed had raised its target 14 times since June 2004, from 1% to 4.50%. Lenders were paid about the same for one month as for 30 years.
Inverted: on 3 July 2023, the 6-month bill paid 5.53%, while the 10-year note paid 3.86%. The Fed had raised its target range 10 times since March 2022, to 5% to 5.25%.
We cover the Fed's rate and its history in What Is the Fed Funds Rate?
Why the yield curve usually slopes upward
Two forces set a long-term yield:
Expected future rates. Buying a 10-year Treasury competes with buying a one-month bill and rolling it over for ten years. So the 10-year yield reflects where buyers expect the Fed's overnight rate to be over the decade. The Fed sets that overnight rate, so it anchors the curve's shortest maturities.
The term premium. This is extra pay for tying money up for longer, while inflation and interest rates could change. It pushes long yields above the path of expected rates.
The Federal Reserve Bank of New York (the New York Fed) estimates both parts with a model by Tobias Adrian, Richard Crump and Emanuel Moench. On its estimates, the 10-year term premium was positive on 87% of trading days since June 1961. This is one reason the normal curve slopes upward.
What moved the US curve in the past year
On 6 October 2025, the Fed's target range was 4% to 4.25%. On 5 October 2026, it was 3.75% to 4%, after two cuts and one rise. Over the same year, the one-month yield fell from 4.22% to 4.05%. The 10-year yield rose from 4.18% to 5.31%, a rise of 1.13 points.
The New York Fed's estimates use a slightly different measure of the 10-year yield, with data to 2 October 2026. On that measure, the 10-year yield rose 1.03 points from 6 October 2025. Higher expected rates made up 0.76 points of that. A higher term premium made up 0.27 points.
So on these estimates, buyers expect higher rates over the next decade, even though the Fed's range is lower than a year ago.
The 10-year minus 2-year spread since 1976
The quickest read on the slope is the 10-year yield minus the 2-year yield. Above zero, the curve slopes upward. Near zero, it is flat. Below zero, it is inverted.
Source: FRED (T10Y2Y, USREC); YX Insights
The chart shows the spread on every trading day since June 1976. Grey bars mark US recessions, as dated by the National Bureau of Economic Research (NBER). Over the whole period, the mean spread was 0.84 points and the median 0.77. It was below zero on 16.3% of trading days. Its low was −2.41 points, in March 1980.
The spread fell below zero before each of the six US recessions since 1976. It has also given a warning with no recession so far. From July 2022 to August 2024, it stayed below zero for 537 trading days in a row, the longest run in the data. It reached −1.08 points on 3 July 2023, the lowest since September 1981. As of October 2026, the NBER has dated no recession since 2020.
How to read the yield curve
A few points help:
Start with the slope. Check the 10-year minus 2-year spread. Positive is normal, near zero is flat and negative is inverted. Another version takes the 3-month yield from the 10-year yield. On 5 October 2026, that gap was 1.09 points.
See which end moved. Moves in bills of a few months mostly follow the Fed. Moves in 10-year and 30-year yields reflect expected rates and the term premium, as in the past year.
Read an inversion as a warning sign with a mixed record. It came before every US recession since 1976. The longest inversion on record has not been followed by one so far.
Watch the 10-year yield if you borrow. The US 30-year fixed mortgage rate tracks the 10-year yield. We explain why in Why Mortgage Rates Follow the 10-Year Treasury Yield.
The yield curve shows what the US government pays to borrow for each length of time. Upward is normal, level is flat and downward is inverted. An inversion came before each of the six US recessions since 1976, but the longest one on record has had no recession so far. On 5 October 2026, the curve was normal. The 10-year yield was 0.47 points above the 2-year.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
Multi-model Signals: a daily long-or-flat call on every name we cover. Each call shows how strongly our four models agree.
Research: company deep dives, macro commentary and essays on how we test.
Good places to start on the website:
Academy: more explainers like this one.
Start here: get our free weekly letter by email.
Macro & Megacaps Systematic Portfolio and Commodities: the two portfolios in detail.
Track record: live results since 3 August 2026, plus the ten-year backtest.
Upgrade: get the Systematic Portfolio, Multi-model Signals and research in full.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.