Bond Yields May Foreshadow A Coming Recession


Yield on short-term treasury bonds has been higher than long-term bonds for more than 30 consecutive days, a sign that investors fear a coming recession, according to The Wall Street Journal.

The decade long economic expansion, the longest in US history, has investors worried that the economy is due for a recession. The yield on three-month bonds has exceeded that of 10-year bonds by as much as 0.259 percentage point. Long-term yields move based on expectations for economic growth and inflation while short-term yields reflect the Fed's interest rate policy.

When yields for short-term bonds are higher than for long-term bonds it is called an inverted yield curve. Friday’s jobs report for June showed great growth and has caused some investors to doubt whether an inverted yield curve really means an economic downturn is coming.

Expectations that the Fed will cut interest rates this month has also caused investors to further doubt a coming recession. However, most agree that economic growth is decelerating and that the inverted yield curve doesn’t help with positive economic outlook

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Economics, Finance and Investing