← Back to home
📉
Macro Deep Dive
Yield Curves
Reading the market's mood
~25 min · 5 lessons
What you'll learn
- ✓Read a yield curve
- ✓Explain inversion
Lessons
- 📈Two Shapes, One CountryWhy the same Treasuries plotted very differently in 2003 and 2023Start →
- The Four ShapesFinish the previous lesson to unlock
- The Term PremiumFinish the previous lesson to unlock
- Inversion and RecessionsFinish the previous lesson to unlock
- Final Boss: Trading the CurveFinish the previous lesson to unlock
Sources
All content is drawn from the sources below. We deliberately avoid unverified material.
- The Yield Curve as a Predictor of US Recessions (Estrella and Mishkin, 1996)Federal Reserve Bank of New York, Current Issues in Economics and Finance · academicPrimary source for the 10-year minus 3-month yield spread as a leading indicator of US recessions, and for the historical record that every post-1955 US recession was preceded by an inversion.https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci2-7.pdf
- Predicting US Recessions: Financial Variables as Leading Indicators (Estrella and Mishkin, 1998)Review of Economics and Statistics · academicFollow-up academic paper that formalizes the recession-probability model. Foundation for the NY Fed's ongoing recession-probability series based on the 10y minus 3m spread.https://www.mishkin.com/articles/file/EstrellaMishkinRevEconStat98.pdf
- Information in the Yield Curve about Future Recessions (Bauer and Mertens, 2018)Federal Reserve Bank of San Francisco Economic Letter 2018-20 · institutionalReference for the caveat that term premium compression complicates the inversion-as-recession signal in modern data. Used in lessons 3 and 4.https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/information-in-yield-curve-about-future-recessions/
- Pricing the Term Structure with Linear Regressions (Adrian, Crump, Moench, 2013) and the daily ACM term premium seriesFederal Reserve Bank of New York · institutionalSource for the ACM term premium model and the daily ACM estimates that Wall Street uses. Backs the term-premium decomposition in lesson 3.https://www.newyorkfed.org/research/data_indicators/term-premia-tabs
- Reflections on the Yield Curve and Monetary Policy (Bernanke, 2006)Federal Reserve Board, speech to the Economic Club of New York, March 20, 2006 · institutionalPlain-language Federal Reserve source for how the yield curve relates to monetary policy and how central bank actions can shift the term premium and long yields. Backs lesson 5.https://www.federalreserve.gov/newsevents/speech/bernanke20060320a.htm
- Large-Scale Asset Purchases by the Federal Reserve (Gagnon, Raskin, Remache, Sack, 2011)Federal Reserve Bank of New York Staff Report 441 · institutionalSource for the empirical estimate that the first round of US QE pulled the 10-year Treasury yield down by roughly 50 to 100 basis points. Backs the QE-flattens-the-curve claim in lesson 5.https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr441.pdf
- Selected Interest Rates (H.15) daily releaseBoard of Governors of the Federal Reserve System · dataSource for the historical Treasury yields used to characterize the 2003 normal curve, the June 2023 inverted curve, and the depth and duration of the 2022 to 2024 inversion (10y minus 2y troughing near minus 108 basis points).https://www.federalreserve.gov/releases/h15/
- Macroeconomic Term Structure Model and Daily Term Premium Estimates (Kim and Wright, 2005)Federal Reserve Board, Finance and Economics Discussion Series 2005-33 · academicReference for the second canonical term premium model alongside ACM. Used in lesson 3.https://www.federalreserve.gov/pubs/feds/2005/200533/200533abs.html
- Fixed Income Securities (Bruce Tuckman)Wiley · bookReference for the standard definitions of steepener and flattener trades and the duration-weighted construction used by fixed-income desks. Backs lesson 5.
- The Economics of Money, Banking, and Financial Markets (Frederic S. Mishkin)Pearson · bookTextbook treatment of the four canonical yield curve shapes (normal, flat, inverted, humped) and the expectations hypothesis. Backs lesson 2.