What is the 2s10s spread?

The 2s10s spread is the difference between the 10-year and 2-year US Treasury yields, measured in basis points, and is the most-watched gauge of yield-curve slope. A positive spread reflects a normal upward-sloping curve; a negative spread — long yields below short — signals an inverted curve and has historically preceded US recessions.

Why does an inverted 2s10s curve predict recessions?

An inverted 2s10s curve signals that markets expect the Fed to cut rates, which typically happens as growth weakens. When investors price aggressive future easing, the 2-year yield (sensitive to the near-term policy path) rises above the 10-year. Every US recession since the 1970s was preceded by 2s10s inversion, though with variable and sometimes long lead times.

How does 2s10s differ from the 10y-3m spread?

2s10s measures the 10-year minus the 2-year yield, while the 10y-3m spread uses the 3-month bill against the 10-year. The 3-month is anchored tightly to the current funds rate, so the Fed and many academics regard 10y-3m as the cleaner recession signal; 2s10s, with a forward-looking 2-year, often inverts earlier.

What does it mean when 2s10s steepens?

A steepening 2s10s means the spread is widening, with the 10-year rising relative to the 2-year. A bull steepener occurs when the 2-year falls faster (Fed easing); a bear steepener when the 10-year rises faster (term-premium or supply pressure). Steepening typically accompanies the start of an easing cycle or rising long-end risk premia.

What is the 2s10s outlook for 2025?

The 2025 base case favours a steeper 2s10s as the Fed eases. After un-inverting in 2024, the curve is expected to steepen further as front-end yields fall with rate cuts while the 10-year stays supported by heavy Treasury supply and a persistent term premium — a mix of bull and bear steepening.

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Glossary

2s10s

2s10s spread · 2y10y spread · 2-year/10-year Treasury spread · twos-tens

Rates & Bonds

2s10s is the spread between the 2-year and 10-year US Treasury yields, the most-watched gauge of yield-curve slope. A positive (steeper) reading reflects normal upward-sloping curves; a negative (inverted) reading — long yields below short yields — has historically preceded US recessions.

How it works

2s10s = 10-year Treasury yield − 2-year Treasury yield, quoted in basis points. The 2-year tracks expected policy-rate paths over the cycle; the 10-year embeds those expectations plus a term premium. The spread therefore decomposes into a rate-expectations component (driving inversion when cuts are priced) and a term-premium component.

Why it matters now

After the deepest inversion since the 1980s through 2022–24, 2s10s un-inverted in 2024 and the 2025 base case favours continued bull/bear steepening as the Fed eases into a curve still weighed by heavy Treasury supply and a sticky term premium.

Example

In mid-2023 2s10s reached roughly −108 bp, its most inverted level since 1981, as the Fed held the funds rate at 5.25–5.50% while markets priced eventual cuts into the 2-year. By September 2024 the spread had climbed back above zero — a textbook re-steepening as front-end cut pricing pulled the 2-year down faster than the 10-year.

Mechanism

2s10s = 10y UST yield − 2y UST yield (in bp); inverted when < 0

How desks use it

Gauging recession risk and the market's implied Fed path from curve slope.
Structuring steepener/flattener trades around easing-cycle inflection points.
Separating rate-expectations moves from term-premium repricing in rates strategy.

Key moves

2022-072s10s inverts as the Fed front-loads hikes; front-end yields surge above the 10-year.
2023-07Spread troughs near −108 bp, deepest inversion since the early 1980s.
2024-092s10s un-inverts back above zero as Fed cut pricing pulls the 2-year lower.

Frequently asked

What is the 2s10s spread?: The 2s10s spread is the difference between the 10-year and 2-year US Treasury yields, measured in basis points, and is the most-watched gauge of yield-curve slope. A positive spread reflects a normal upward-sloping curve; a negative spread — long yields below short — signals an inverted curve and has historically preceded US recessions.
Why does an inverted 2s10s curve predict recessions?: An inverted 2s10s curve signals that markets expect the Fed to cut rates, which typically happens as growth weakens. When investors price aggressive future easing, the 2-year yield (sensitive to the near-term policy path) rises above the 10-year. Every US recession since the 1970s was preceded by 2s10s inversion, though with variable and sometimes long lead times.
How does 2s10s differ from the 10y-3m spread?: 2s10s measures the 10-year minus the 2-year yield, while the 10y-3m spread uses the 3-month bill against the 10-year. The 3-month is anchored tightly to the current funds rate, so the Fed and many academics regard 10y-3m as the cleaner recession signal; 2s10s, with a forward-looking 2-year, often inverts earlier.
What does it mean when 2s10s steepens?: A steepening 2s10s means the spread is widening, with the 10-year rising relative to the 2-year. A bull steepener occurs when the 2-year falls faster (Fed easing); a bear steepener when the 10-year rises faster (term-premium or supply pressure). Steepening typically accompanies the start of an easing cycle or rising long-end risk premia.
What is the 2s10s outlook for 2025?: The 2025 base case favours a steeper 2s10s as the Fed eases. After un-inverting in 2024, the curve is expected to steepen further as front-end yields fall with rate cuts while the 10-year stays supported by heavy Treasury supply and a persistent term premium — a mix of bull and bear steepening.

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