A three-panel diagram plotting yield against maturity for the U.S. Treasury curve. Panel one: 'Normal' — upward-sloping, long rates above short rates. Panel two: 'Flat' — nearly horizontal, short and long rates similar. Panel three: 'Inverted' — downward-sloping, short rates above long rates. Below each panel, a note on what each shape has historically preceded: normal → expansion, flat → transition, inverted → recession within 6–24 months in every American cycle since 1970 except one.
A time-series chart showing the two most-watched spreads from 1985 to present, with shaded recession bars. Annotations mark each inversion and the subsequent recession. Caption below: 'The 3-month/10-year spread has the strongest historical predictive record; the 2-year/10-year is the market's preferred watch.'
- An inverted curve has preceded every American recession since 1970 except one.
- The 10y–3m spread is the strongest historical predictor.
Diagrams and schematics accompanying this lesson.