A so-called inverted yield curve between three-month and 10-year interest rates is considered by Wall Street as a reliable sign of an impending economic slump. A recession warning tracked by Wall Street is growing louder, as another measure of the widely watched “yield curve” signals that the United States is headed toward an economic slump. The yield curve is a way of comparing interest rates, also known as yields, on different maturities of government bonds, from a few months to 10 years or more. Investors typically expect to be paid more interest for lending to the government for a longer time, partly reflecting the risk of locking up money given the usual expectations for rising growth and inflation. But short-term yields occasionally rise above longer-term yields, upending the usual situation in the bond market. It’s called a yield-curve inversion, and it means investors are now effectively demanding more money to lend to the government over shorter periods of time. That is an indication investors expect economic growth to decline soon — perhaps within a year — and that the Federal Reserve will need to cut interest rates below where they are currently to help an ailing economy.
Source: NY Times
