Beware – The Last 7 Times The Yield Curve Inverted The U.S. Economy Was Hit By A Recession

Monday, July 23, 2018
By Paul Martin

By Michael Snyder
TheEconomicCollapseBlog.com
July 23, 2018

Seven times since the 1960s we have seen the yield curve invert, and in each of those seven instances an economic recession in the United States has followed. Will this time be any different? Today, the yield curve is the flattest that it has been in 11 years, and many analysts believe that we will see an inversion before the end of 2018. If an inversion does take place, experts will be all over the mainstream media warning about “an imminent recession”. Unfortunately, most Americans don’t understand these things, and when they hear terms like “yield curve” they tend to quickly tune out. So in this article we are doing to define what a yield curve is, why it is so important, and why another U.S. recession may be rapidly approaching.

Let’s start with a really basic definition of a yield curve. This one comes from Investopedia…

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

But most of the time, the experts that are talking about “the yield curve” are talking about the difference between interest rates on two-year and ten-year U.S. Treasury bonds. The following comes from CNBC…

Start with a government issued two-year Treasury bond and a 10-year Treasury bond. They both pay interest. Typically, the 10-year pays a higher interest rate than the two-year to compensate buyers for the time difference. The difference between the interest rates in these two bonds is called the “spread”. If the spread is greater than zero, it means the two-year interest rate is lower than the 10-year, and that is normally the case.

A normal spread for these two bonds will take the appearance of a rising chart — an upward sloping yield curve. But when the spread goes negative, the yield curve “inverts” giving the appearance of a negative yield curve.

An “inverted yield curve” strikes fear among investors because it makes lending unprofitable.

The Rest…HERE

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