Want to know what the bond market is thinking? Check out the yield curve

The stock market might not be the economy, but the bond market is a different story. And to find out what the bond market thinks about the economy, consider the yield curve.

“A yield curve is really how the market is expecting Federal Reserve policy rates to evolve over time,” said Meghan Swiber, managing director in U.S. rates strategy at Bank of America Merrill Lynch.

Yields are how much a person is paid when they buy a bond. The yield curve is the spread of how the different yields on each type of Treasury bond compare to the others.

Conventionally, yields on shorter-term bonds are smaller — after all, the government is only hanging onto that money for a couple years years. On the other hand, longer-term bonds like the 10-year and 30-year are often higher because the government is hanging on to that money longer.

The relationship between those, then, becomes an upward curve. But occasionally, that curve becomes a bit flatter, or even inverts. Lately, a selloff has caused yields to soar across the board, causing the yield curve to flatten and steepen over the last few weeks.

And according to Swiber, inflation and the Federal Reserve’s interest rate policy are the cause.

“If the market is expecting the Fed to hike, we're going to see front short-term rates move up,” Swiber said. “And if the bond market is expecting the Fed to need to hike more aggressively and stay at those rate levels for a long period of time, that's going to impact 10-year and 30-year interest rates. So, the market response that we've seen over the past couple months has been both of those two things.”

“Marketplace” host Kai Ryssdal spoke to Swiber about the bond market.

To listen, use the “play” button at the top of the page.