What is the "yield spread"?
When discussing the yield curve, many people also refer to the yield spread. This number is the mathematical difference between the yields of short- and longer-maturity securities, typically the two- and 10-year Treasury notes. In general, a positive and rising yield spread as maturities lengthen indicates the curve is normal or steepening; a declining or negative yield spread would reflect a flattening or inverted curve.
How can the yield curve be useful to me?
Because the yield curve may signal where the economy is headed, it also sheds light on the return expectations investors have for the stocks and bonds you may have in your portfolio. In general, the flattening of the yield curve suggests potentially slower growth and weaker longer-term inflation expectations, and a steepening indicates economic growth, interest rates and inflation may be on the rise.
One of many factors to consider
Keep in mind yield curves and yield spreads are always changing. They are one of many factors that experts watch to gauge the health of the economy and the direction of interest rates. While it's helpful to understand and follow these concepts, it doesn't mean that you need to make a move in your portfolio.
We believe the best approach to weathering various markets is creating a diverse portfolio with an investment mix suited to your investing time frame and comfort with risk.