Description
The United States Treasury Yield - 10-Year Minus 2-Year is released by the U.S. Department of the Treasury and serves as a crucial indicator of the yield spread between short-term and long-term interest rates, closely tied to the business cycle.
During periods of economic expansion, the government typically implements loose monetary policies to support economic growth. These loose policies keep short-term interest rates relatively low. At the same time, because long-term Treasuries have a longer duration, investors face greater risks (such as interest rate risk and credit risk), which lead them to demand higher returns, resulting in higher long-term interest rates. Therefore, during periods of economic expansion, we usually observe a positive yield curve, where the 10-year Treasury yield is higher than the 2-year Treasury yield, reflecting market confidence and expectations of economic growth.
However, when the economy overheats, the government may implement tight monetary policies to curb inflation, which generally pushes up short-term interest rates. Simultaneously, investors may anticipate an economic slowdown or recession, leading them to purchase long-term Treasuries as a safe haven. This increased demand for long-term bonds drives up their prices, thereby lowering long-term yields. As a result, when short-term rates exceed long-term rates, a negative yield curve (yield curve inversion) occurs, reflecting market concerns and expectations of an economic downturn.