Yield Curve Inversion

An abnormal condition where short-term interest rates exceed long-term rates, causing the yield curve to slope downward. An inverted yield curve -- particularly when the 2-year Treasury yield exceeds the 10-year yield -- has preceded every U.S. recession since 1955, making it one of the most reliable economic warning signals in finance. The inversion reflects bond market expectations that the Federal Reserve will eventually be forced to cut rates in response to an economic slowdown.