Short-term rates exceed long-term, often predicts recession
Inverted yield curve
Short-term rates exceed long-term, often predicts recession
An inverted yield curve occurs when short-term debt instruments yield more than long-term bonds. This phenomenon is unusual because bonds with shorter maturities typically offer lower yields than longer-term bonds. To confirm an inverted yield curve, compare the yield on a 10-year U.S. Treasury bond to a 2-year Treasury note or a 3-month Treasury bill. If the 10-year yield is less than either the 2-year or 3-month yield, the curve is inverted.
Example
If the yield on a 10-year U.S. Treasury bond is 2%, while the yield on a 2-year Treasury note is 2.5%, the yield curve is inverted.
Remember this
Understanding an inverted yield curve is crucial as it often signals an impending recession.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
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Educational content, not financial advice.
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