Stage II · The Mechanics · STEP 5

The yield curve

The curve is the market's forecast, priced. Every tenor is a different bet on growth, inflation and risk.

Why this matters

The yield curve plots the yield on the same borrower's debt across maturities — 2yr, 10yr, 30yr. Its shape encodes what the market expects for growth, inflation and the premium demanded to hold a long bond instead of rolling a short one. It is the single densest chart in macro.

The 2s10s slope — the 10yr yield minus the 2yr — is the market's shorthand for cycle risk. When it inverts, the front end is pricing a policy path that the long end reads as a mistake: tightening now that will force easing later. Inversions have preceded recessions; they are not the recession.

Learning the curve teaches the discipline of tenor. A 2yr move is about policy expectations; a 30yr move is about term premium, supply and inflation risk. When the long end disbelieves the front end, that disagreement is the story — and it is where most of our weekday pieces live.

Watch

Patrick Boyle ↗
Clear, unsentimental explanations of the curve, duration and why the long end behaves the way it does.
Money & Macro (Joeri Schasfoort) ↗
Ties the curve to the real economy without hand-waving: why the shape carries information, not just sentiment.

Read — our own explanation

Verify at the source

BEFORE YOU MOVE ON

You can explain what a 2s10s slope measures, why the curve can invert before a recession, and why a long-end move is not the same as a front-end move.

← Step 4: The central bank · Step 6: Liquidity and the plumbing →