Key Indicator Of Yield Inversion Points Towards a Recession
While accuracy in predicting the future pales in comparison to the reality that the future approaches daily, there are common sense approaches to predicting large scale economic trends.
Over time, the inversion of the yield curve has heralded recessions and other negative near run economic challenges. Why?
Because generally, investors who commit their money longer term in the bond market (for more than 10 years) are rewarded for that higher level of risk with higher yields.
When the short term (bonds with maturities of under 5 years) begins to yield a greater return than long term bonds, the yield curve has ‘inverted’ showing that the market believes immediate interest rate hikes designed to stem inflation and potentially avoid or limit a recession will drive up returns now…
How Accurate Is Yield Curve Inversion In Predicting A Recession
An inverted yield curve has been extremely accurate over the last five decades on predicting a future recession although it has not been precise on when that downturn would occur.