EXPLAINED: U.S. Treasury yield curve inverts for first time since 2007
- The inversion of the U.S. Treasury yield curve extended to 3-month bills for the first time since 2007. Here is what that means.U.S. Treasuries are bonds, or debt, sold by the federal government, most of which pay a fixed rate of interest over a fixed period, ranging from one month to 30 years.
In normal circumstances, it has an arcing, upward slope because bond investors expect to be compensated more for taking on the added risk of owning bonds with longer maturities. So a 30-year bond typically yields more than a 1-month bill or 3-year note.When yields further out on the curve are substantially higher than those near the front, the curve is referred to as"steep." So a 30-year bond will deliver a much higher yield than a 2-year note.
The curve overall has been flattening for some time. The front-end to intermediate part of the curve inverted for the first time in a decade back in December.Yield curve inversion is a classic signal that a recession is coming. Under these circumstances, companies often find it more expensive to fund their operations and executives tend to temper or shelve investments. Consumer borrowing costs also rise and consumer spending, which accounts for more than two-thirds of U.S. economic activity, slows.HOW SOON DOES RECESSION OCCUR AFTER THE CURVE INVERTS?
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