10-year yield curve inverts in the U.S. – IE
The inversion is an early warning sign of potential recession
By: Associated Press, IE Staff
One of the most closely watched predictors for recession just yelped even louder.
The signal lies within the bond market, where investors show how confident they are about the economy by how much interest they’re demanding from U.S. government bonds. That signal is the yield curve, and a significant part of it flipped Friday for the first time since before the Great Recession.
A Treasury bill maturing in three months yields 2.45%, 0.03 percentage points more than a Treasury maturing in 10 years. Economists call this an inverted yield curve because short-term debt usually yields less than long-term debt.
The rule of thumb is that an inverted curve can signal a recession in about a year, and has preceded each of the last seven recessions, according to the Cleveland Fed.
However, nervous investors can take solace in market performance data analyzed by AGF, which finds that 10-year, as well as two-year, inversion generally occurs without resulting in the worst returns, relative to other spreads.