2s10s Spread
The 2s10s spread is the 10-year government bond yield minus the 2-year yield. When it turns negative, the yield curve is inverted; in the US, inversions have often preceded recessions, though the timing has varied widely.
Normally, lending for longer pays more: 10-year bonds yield more than 2-year bonds. The 2s10s spread measures that gap, and it is one of the most watched numbers in markets. When it shrinks the curve “flattens”; when it turns negative the curve is “inverted” — a situation that has often appeared before US recessions. This entry explains what the spread measures, why it moves, and how to read it carefully.
- Category
- Bonds and Interest Rates
- Reading time
- 4 min
- Also called
- 2-10 spread, Yield curve inversion, Inverted yield curve
- Updated
The 2s10s spread in plain words
The US Treasury sells notes with terms of 2, 3, 5, 7 and 10 years.1 Take the 10-year yield, subtract the 2-year yield, and you have the 2s10s spread. See Treasury Bills, Notes and Bonds.
Short-term yields follow central-bank policy closely; long-term yields also reflect growth and inflation expectations. When the central bank raises rates sharply, 2-year yields can rise above 10-year yields, inverting the curve. See Central Bank.
How to read the 2s10s spread, step by step
Calculate it
10-year yield − 2-year yield, often in basis points.
Positive and wide
A steep curve: often seen early in recoveries.
Narrowing
Flattening: often as policy tightens.
Negative
Inverted: short rates above long rates.
Watch the cause
Is it short rates rising (bear flattening) or long rates falling (bull flattening)?
Connect to bond prices
Yield moves change prices in the opposite direction.2
Worked examples
Example 1 — The calculation
InvertedThe 2-year yield is 4.6% and the 10-year yield 4.2%.
| 2s10s spread | 4.2% − 4.6% = −0.4% (−40 bp) |
A negative spread means the curve is inverted.
Example 2 — Steepening after cuts
SteepeningThe central bank cuts rates; the 2-year falls from 4.5% to 3.5% while the 10-year stays at 4.0%.
| Spread before | −0.5% |
| Spread after | +0.5% |
Rate cuts often steepen the curve from the short end.
Example 3 — A signal, not a timer
CautionThe curve inverts, but the economy keeps growing for well over a year.
| Signal | Inversion |
| Timing | Uncertain |
Inversions are watched as warnings, but they do not say when — or whether — a recession arrives. Official recession dating is done after the fact.3 See Recession.
Shapes of the yield curve
| Aspect | 2s10s spread | Often associated with |
|---|---|---|
| Steep | Large and positive | Early recovery, expected growth |
| Flat | Near zero | Late cycle, tightening policy |
| Inverted | Negative | Tight policy; watched as a recession warning |
| Re-steepening | Rising from negative | Expected rate cuts |
Why traders watch the 2s10s
Economic outlook
A summary of rate and growth expectations.
Bank profits
Banks borrow short and lend long; curve shape affects margins.
Curve trades
Positioning for steepening or flattening.
Risk management
A backdrop for equity and credit risk. See Credit Spread.
Advantages and disadvantages
Advantages
- Simple, widely followed indicator.
- Combines policy and growth expectations.
- Long history of observations.
Disadvantages
- Timing of any recession after inversion varies widely.
- Distorted by central-bank bond buying and term premiums.
- One spread cannot describe the whole curve.
Going deeper
Read as far as you need. Each level builds on the one before it.
Basis points
Beginner
Spreads are often quoted in basis points: −40 bp means the 10-year yields 0.40 percentage points less than the 2-year.
Other spreads
Intermediate
Some analysts prefer the 10-year minus 3-month spread. Different spreads can send different signals at the same time.
Term premium
Advanced
Long yields include compensation for holding long-dated bonds. Changes in this term premium can move the spread independently of expectations.
Common mistakes
Treating inversion as a timer
Lags have varied widely.
Ignoring the cause of moves
Bull and bear moves mean different things.
Using one country’s curve for another
Curves differ between economies.
Trading the signal alone
Combine with other data. See Economic Indicator.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- 2s10s = 10-year yield − 2-year yield.
- Negative means an inverted yield curve.
- Inversions have often preceded US recessions, with variable timing.
- Policy moves usually drive the 2-year; growth and inflation the 10-year.
- Use it as context, not as a timing tool.
Frequently asked questions
Why does an inverted yield curve worry investors?
Does an inversion guarantee a recession?
What is a steepening curve?
Further learning
- Treasury Bills, Notes and Bonds
The bonds behind the spread.
- Recession
What inversions are watched for.
- Central Bank
What drives short-term yields.
- Interest Rate
How rates move bond prices.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- TreasuryDirect (U.S. Treasury). Treasury Notes (opens in a new tab) Checked .
- Investor.gov (SEC). Investor Bulletin: Fixed Income Investments — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall (opens in a new tab) Checked .
- National Bureau of Economic Research. Business Cycle Dating (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.