Glossary / Macro & regime

Yield curve

Also called: inverted yield curve · term structure

The yield curve plots the yields on government bonds of the same issuer against their time to maturity. Its shape describes what the bond market is currently pricing for interest rates across horizons.

How it is measured

Take current yields across maturities — from a few months out to thirty years — and plot them against maturity. The curve is usually summarised by the spread between two points on it. An upward slope, where longer maturities yield more, is the ordinary shape. Inversion describes a curve where a shorter maturity yields more than a longer one.

Why it matters

Rate direction is one of the market-wide inputs that regime classifications are built from, so the curve sits upstream of a lot of the macro vocabulary. Inversion in particular has drawn attention because it has historically preceded US recessions, but the two properties that make it hard to act on are rarely stated together: the lag between inversion and recession has been long and highly variable, and the sample of historical occurrences is small enough that the regularity is far weaker evidence than the frequency of its citation suggests.

In Market Census

Interest rates are one of the market readings Market Census tracks for its market regime view.

Related

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How Market Census scores stocks

Related terms

Market regime
A market regime is a broad classification of prevailing market conditions into a small set of named states — risk-on and risk-off being the most common pair, sometimes with a neutral state between them.
VIX
The VIX is an index of the volatility expected over the next 30 days in the S&P 500, derived from the prices of that index's options.
Market breadth
Market breadth measures how widely a market move is shared across the securities in it, rather than how far the index itself has travelled.
Sector rotation
Sector rotation describes a shift in which parts of the market are moving most, as capital concentrates in some sectors and thins out of others over weeks or months.

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General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.