Inverted Treasury Yield Curve – Gloomy Economy ahead?


What is an Inverted Yield Curve?

An inverted yield curve happens when long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. Example of short term bonds will be 3 months bond, 1-year bonds, 2-year bonds and long term bonds will be 10-year bonds.  

The inverted yield curve is considered to be a predictor of economic recession.


What happen on 5th Aug 2019?

On Aug 5, the yield on 10-year Treasury bonds closed at 1.75 percent, the lowest it has been since October 2016. Meanwhile a 30-day Treasury bond is yielding 2.07 percent, meaning that short-term lenders receive a higher yield than those tying up their money for 10 years. 

Is there a need to be worry?

On average, It takes about 14 months from date of inversion prior to recession. However, U.S is still producing strong economy data, the Unemployment rate is at 3.7% in July 2019 and nonfarm payrolls is strong at 224K. 

Point of concern will be the ongoing trade war with China, the tariffs could drive up consumer prices, stifle demand and weigh on corporate investment.

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Author: The Financial Guy

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