Indicators

How bond yields might tell us if world is headed for recession

What’s an inverted yield curve?BCCL
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What’s an inverted yield curve?
-The yield curve shows how much interest is earned from investing in government bonds, considered among the safest forms of investment as it is guaranteed by the government. It essentially shows the relationship between long- and short-term interest rates.

-A longer term investment in government bonds generally comes with more risk and therefore greater yield than a short-term investment.

-But in the inverted yield curve scenario, interest rates on shortterm bonds are higher than the rates on long-term bonds.
What happened on August 14th?BCCL
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What happened on August 14th?
The high demand for long-term bonds is driving down their yields.

On August 14, the yield on a 10-year US Treasury bond fell below the yield on a two-year bond, creating an inverted yield curve scenario for the first time since 2007, before recovering slightly.
How bond yields might tell us if world is headed for recession.
Predicted nine recessionsBCCL
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Predicted nine recessions
-The inverted yield curve has been a fairly accurate predictor of a slowdown.

-The curve has inverted before every US recession since 1955, though sometimes several months or years before a recession fully starts.

-An inversion has accurately forecast a recession nine times and only once was followed by a slowdown rather than a full recession.
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