The inverted yield curve is feared by many investors in the world as many claim that is a signal that a recession in the economy will soon take place. On the other hand, many argue that is “false advertisement” as it is only indicating the movements of long-term bond yields against short-term bond yields. However, that as its own is a big indicator of something is happening in the economy. The inverted yield curve and the term spread, the different between long-term interest rates and short-term interest rates have been indicators of slowdowns in the US economy over 60 years now, and in all of the cases except one, they signaled that recession was coming.
- The yield curve is an indicator of bond investors’ behavior. Meaning that demand for short-term bonds will have a different impact on the yield curve than demand for long-term bonds.
- The most important factors are herding and loss aversion effect, which both are a physiological phenomenon which takes place in the human mind and affects in a great extent the decision-making process of an investor.
- Individual investors are initiators of the inverted yield curve. Meaning that their behavior and their actions dictate which movement the yield curve will take.
- Examines if the inverted yield curve can signal a recession
Reasons To Buy
- Does the inverted yield curve signals a recession? - What is the negative term spread? - Is the US economy currently under threat?