Recessions And Yield-Curve Inversion: What Does It Mean?

There’s a lot of chatter about the inversion of the yield curve and how it’s an indicator of an impending recession. To better understand, let's take a look at both the history, and the current situation.

Remember that a recession is generally defined as two consecutive quarters of negative GDP growth. It’s a period of economic decline with a reduction in trade and industry activity, and a natural part of the business cycle. There are multiple other characteristics associated with recessions, but for our purposes, the general definition is adequate.Simply stated, the yield curve is a graph that plots the interest rate yield on bonds over varying maturities.

Typically, investors will want about 1% more from a 10-year Treasury than a 2-year Treasury. This is logical: the longer you put your money out, the more you want in return. Factor in that there’s more risk in the longer term: risk of inflation or of default . Yield curves come in many shapes. A standard yield curve is upward sloping . A flat yield curve is when long term and short-term rates are about equal . An inverted yield curve is an indicator of trouble on the horizon when short-term rates are higher than long term rates .An inversion is when the short-term rates are higher than the long-term rates. There are many types of inversions, but the standard is the 10-year Treasury yield minus the 2-year Treasury yield.

Is an inversion a predictor of a recession? In general, an inversion is a good predictor of lower growth and a subsequent recession. Consider the

Are we saying America may go into Recession? Oh dear realDonaldTrump. DuckFart

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