Definition
A line plotting the yields of U.S. Treasury securities against their maturities, from a few weeks out to 30 years. Normally it slopes upward, since lenders demand more to lock money up longer; it is flat when short and long yields are similar and inverted when short-term yields exceed long-term ones. Inversions have historically preceded recessions, though the timing varies.
Why it matters
The curve's shape sets the rates you actually live with: savings accounts and short CDs track the short end, while 30-year mortgage rates track the long end. An inverted curve is the unusual moment when a savings account can pay more than a long-term bond.
Example
Suppose three-month Treasury bills yield 5% while the ten-year note yields 4%. On $10,000, a bill ladder earns about $500 a year and the note about $400, so a saver parks cash short and stays flexible. Meanwhile a home buyer's 30-year mortgage rate, which follows the ten-year, sits closer to 6.5% than the 7.5% a normal curve might imply.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.