Difference between revisions of "Inverted Yield Curve"

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An inverted yield curve occurs when short-term interest rates on bonds are higher than longer-term bonds. An inverted yield curve is considered a barometer or early warning of an impending economic recession. That is because investors are essentially buying short-term bonds, such as 2-year bills which pay higher yields than say, 10-year notes, and thus showing little confidence in the short-term economy. In a healthy economy, longer-term bond yields are significantly higher than short-term instruments.
 
An inverted yield curve occurs when short-term interest rates on bonds are higher than longer-term bonds. An inverted yield curve is considered a barometer or early warning of an impending economic recession. That is because investors are essentially buying short-term bonds, such as 2-year bills which pay higher yields than say, 10-year notes, and thus showing little confidence in the short-term economy. In a healthy economy, longer-term bond yields are significantly higher than short-term instruments.
  
The most recent example of this was on August 14, 2019 when the yield on the 2-year rose to 1.634%, rising above the 10-year note rate of 1.623% briefly. The prior inversion occurred in December 2005, two years before the [[Global Financial Crisis]] and subsequent "Great Recession."<ref>{{cite web|url=https://www.cnbc.com/2019/08/13/us-bonds-yield-curve-at-flattest-level-since-2007-amid-risk-off-sentiment.html|name=Main yield curve inverts as 2-year yield tops 10-year rate, triggering recession warning|org=CNBC|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.reuters.com/article/global-markets/global-markets-stocks-oil-tank-on-growing-signs-of-global-slowdown-idUSL8N25A5KK|name=Stocks, oil tank on growing signs of global slowdown|org=Reuters|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.bloomberg.com/news/articles/2019-08-14/u-k-yield-curve-inverts-for-first-time-since-financial-crisis|name=Bond Rally Charges On With 30-Year Treasury Yields Below 2%|org=Bloomberg|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.thebalance.com/inverted-yield-curve-3305856|name=Inverted Yield Curve and Why It Predicts a Recession |org=The Balance|date=August 15, 2019}}</ref>  
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The most recent example of this was on August 14, 2019 when the yield on the 2-year rose to 1.634%, rising above the 10-year note rate of 1.623% briefly. The prior inversion occurred in December 2005, two years before the [[2008 Global Financial Crisis]] and subsequent "Great Recession."<ref>{{cite web|url=https://www.cnbc.com/2019/08/13/us-bonds-yield-curve-at-flattest-level-since-2007-amid-risk-off-sentiment.html|name=Main yield curve inverts as 2-year yield tops 10-year rate, triggering recession warning|org=CNBC|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.reuters.com/article/global-markets/global-markets-stocks-oil-tank-on-growing-signs-of-global-slowdown-idUSL8N25A5KK|name=Stocks, oil tank on growing signs of global slowdown|org=Reuters|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.bloomberg.com/news/articles/2019-08-14/u-k-yield-curve-inverts-for-first-time-since-financial-crisis|name=Bond Rally Charges On With 30-Year Treasury Yields Below 2%|org=Bloomberg|date=August 15, 2019}}</ref><ref>{{cite web|url=https://www.thebalance.com/inverted-yield-curve-3305856|name=Inverted Yield Curve and Why It Predicts a Recession |org=The Balance|date=August 15, 2019}}</ref>  
  
 
Data from Credit Suisse from 2019 to 1978 showed that the prior five inverted yield curve events between 2-year and 10-year yields lead to recessions on average, within 22 months.   
 
Data from Credit Suisse from 2019 to 1978 showed that the prior five inverted yield curve events between 2-year and 10-year yields lead to recessions on average, within 22 months.   

Revision as of 08:48, 15 August 2019

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An inverted yield curve occurs when short-term interest rates on bonds are higher than longer-term bonds. An inverted yield curve is considered a barometer or early warning of an impending economic recession. That is because investors are essentially buying short-term bonds, such as 2-year bills which pay higher yields than say, 10-year notes, and thus showing little confidence in the short-term economy. In a healthy economy, longer-term bond yields are significantly higher than short-term instruments.

The most recent example of this was on August 14, 2019 when the yield on the 2-year rose to 1.634%, rising above the 10-year note rate of 1.623% briefly. The prior inversion occurred in December 2005, two years before the 2008 Global Financial Crisis and subsequent "Great Recession."[1][2][3][4]

Data from Credit Suisse from 2019 to 1978 showed that the prior five inverted yield curve events between 2-year and 10-year yields lead to recessions on average, within 22 months.

References

  1. Main yield curve inverts as 2-year yield tops 10-year rate, triggering recession warning. CNBC.
  2. Stocks, oil tank on growing signs of global slowdown. Reuters.
  3. Bond Rally Charges On With 30-Year Treasury Yields Below 2%. Bloomberg.
  4. Inverted Yield Curve and Why It Predicts a Recession. The Balance.