IV Macro Policy & Sovereign Debt
Yield curve
A curve that plots one borrower's bond yields by maturity, showing the gap between near-term and distant maturities.
How it works
A yield curve plots the yields on, for example, 3-month, 2-year, 10-year and 30-year government bonds on one chart, ordered by maturity. Normally distant maturities yield more, because investors demand extra return for locking up money for 10 or 30 years. That is an upward-sloping curve. When near-term yields rise above distant ones, the curve inverts.
A curve is not read off a single market quote; it is constructed. The US Treasury derives its daily curve from closing bid prices on the most recently issued seven bills (4–52 weeks), five notes (2–10 years) and two bonds (20 and 30 years). The New York Fed collects the prices at around 15:30 each business day. Since 6 December 2021 the Treasury has filled in intermediate maturities using a monotone convex method.
The trap is treating the curve as independent of method. The yield for the same maturity can be calculated on a simple or compound basis, and different data providers may choose different benchmark bonds. In a high-inflation country the difference can reach several points. Before comparing two curves or two days, check that the series were produced the same way.
Why it matters here
The near end carries the policy rate; the far end carries expectations about inflation and debt risk. The slope reduces the difference between the two to a single number. In Türkiye, with the policy rate at 37%, the 10-year yield stood at 32.80% on 13 October 2026, so the curve is inverted: the market is pricing rate cuts. When the far end rises faster than the near end in a geopolitical shock, the problem is being seen in the debt itself rather than in rates. That is why we place our thresholds at the ends of the curve.