Inverted Yield Curve as Recession Predictor

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, […]

Sonders: Yield Curve Flattening Not Cause for Worry

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 […]