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What the inverted yield curve means
Generally, longer-term bonds pay more than bonds with shorter maturities. Since longer-maturity engagements are more vulnerable to price changes, investors expect a “premium,” explained Preston Caldwell, head of U.S. economics for Morningstar Delving Services.
“In normal times, the yield curve slopes upwards,” he said. But there’s currently a downward sloping curve, also advised of as an “inverted yield,” with the 2-year Treasury paying more than the 10-year Treasury.
While many crackerjacks believe the inverted yield curve is one ‘Real economic indicators are going to suffer’
While a yield curve inversion is only one signal of a practical recession, it shouldn’t be ignored, particularly at the lower end of the curve, experts say.
“Economists have a very, very consistent platter confidentially of not forecasting recessions,” said Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University. “The cede curve is not perfect, but it does better in general than standard forecasts.”
Factors like a once-in-a-100-year far-reaching pandemic and the war in Ukraine make it difficult to compare trends based on past data, Barbera said.
However, it “certainly looks counterpart short rates are going up until that inflation rate breaks in a big way,” he said. “And unfortunately, if we look at the history of that emphatic, it’s likely that real economic indicators are going to suffer alongside or ahead of that break for inflation.”