Whether or not the yield curve on U.S. Treasuries is inverted can be a useful tool in forecasting the next recession, according to a recent Barron’s article. The inverted yield curve has predicted three of the past three recessions, the article says, which “helps lend confidence to its predictive powers.” Typically, long-term interest rates are higher than short-term rates, which results in an upward-sloping yield curve. But an inverted curve occurs when short-term rates are higher than long-term (that is, the 10-year minus the three-month rate is a negative number). The article cites a 2010 Fed report titled “Monetary Cycles, […]
Much has been made recently of the flattening yield curve. But Mark Hulbert says the data indicates the flattening isn’t a major trouble sign.
While some investors have been concerned about the rapidly flattening yield curve, Charles Schwab Chief Investment Strategist Liz Ann Sonders says history shows such a trend isn’t cause for alarm. A flattening yield curve means lower profits for banks, which can borrow at lower short-term interest rates and invest at the higher long-term rates. “That said, it may be surprising to learn that, historically, a flattening yield curve has not been a problem for the stock market overall — quite the contrary,” Sonders says in her latest market commentary. “Since 1962, there have only been 10 other periods when the […]