May 29, 2019
When the yield curve inverts, how nervous should we be?
Historically, an inverted yield curve has spelled recession.
The New York Stock Exchange on a rainy day in New York City last week.
Johannes Eisele/AFP/Getty Images
The yield on a three-month treasury bill is currently higher than the yield on a 10-year treasury – this is known as an inverted yield curve.
Typically, yields increase with the duration of the bond because investors want a higher return if they’re locking their money away for a longer period of time.
As they’ve historically predated recessions, inverted yield curves get a great deal of attention. While an inversion does not guarantee a recession, the larger it is and the longer it lasts, the greater the likelihood of a recession.
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