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Decoding Inverted Yield Curve: Economies, Risks & Recessions Explained

Learn about yield curve inversions, their impact on markets, and indicators of possible recessions in various countries. Explore how bond yields influence investor sentiment and implications for the economy. Get insights on historical trends and potential future scenarios.

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Decoding Inverted Yield Curve: Economies, Risks & Recessions Explained

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  1. Inversion Alert Jason Coyle, Mark DeCicco, Luke Ditton, Jagger Doll, Katrina Eggleston Section B; Group C

  2. Bonds • Represent the debt between an investor and a corporation/government • Safe and reliable investment • Have better interest rates than banks do • Short Term Bond • 1 Month Bill - 10 Year Note • Carry Lower Yield=Less Risk • Long Term Bond • 15-30 Year bond • More Yield=Higher Risk due to inflation

  3. “Yield curve is a way to measure a bond investors’ feelings about risk”- Fidelity

  4. Yield Curve https://www.wsj.com/market-data/bonds

  5. What it means to invert • The yield for a shorter term bond is larger than a long term bond • Investors have little confidence in the near future economy because they see it as riskier • A quick inversion could be just a part of the market trend • Some inversions have not preceded recession

  6. Why the U.S. and other countries have it • Map of the economy • Indicator of possible recessions, inflation, etc

  7. List of regions with Yield Curves • Australia • Belgium • Bulgaria • Canada • Costa Rica • China • Finland • France • Germany • Great Britain • Greece • Hong Kong • Italy • India • Indonesia • Japan • Korea • Malaysia • Netherlands • New Zealand • Norway • Pakistan • Philippines • Romania • Russia • Singapore • Slovakia • South Africa • Spain • Sweden • Switzerland • Thailand • United States • Vietnam

  8. What other signs usually follow it? • Federal Funds Rate cut • Operating Costs Rise • Execs “shelve investments” • Higher % Dedicated to Paying off Debt • Increase in Temporary Employment • Less confidence • Unemployment Rises • Other Countries’ Economies Slow

  9. What the Past Tells Us • A “2-10” inversion has preceded every recession since 1950 • Downturn may not happen as late as 34 months after, 22 months on average • Markets rally 15% after inversion on average • Last happened in June 2007 • Fed cut rates starting Sept. ‘07 • In 11 of 13 cases, Fed lagged in cutting rates • After an inversion, lenders tend to tighten credit standards • Is less lending the cause?

  10. Links https://www.cnbc.com/2019/08/14/the-inverted-yield-curve-explained-and-what-it-means-for-your-money.html https://www.washingtonpost.com/business/2019/08/14/recession-watch-what-is-an-inverted-yield-curve-why-does-it-matter/ https://www.investors.com/news/economy/inverted-yield-curve/ https://www.reuters.com/article/us-usa-economy-yieldcurve-explainer/explainer-countdown-to-recession-what-an-inverted-yield-curve-means-idUSKCN1V320S https://www.bankrate.com/personal-finance/smart-money/watch-these-indicators-know-when-recession-could-be-coming/ https://www.forbes.com/sites/simonmoore/2019/08/20/what-key-recession-indicators-are-telling-us-today/#7fd4d3382156 https://www.investopedia.com/investing/bond-advantages/ https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/bond-yield-curve https://www.investopedia.com/terms/b/bond.asp https://markets.businessinsider.com/news/stocks/yield-curve-inversion-explained-what-it-is-what-it-means-2019-8-1028482016 https://www.forbes.com/sites/leonlabrecque/2019/03/29/recessions-and-yield-curve-inversion-what-does-it-mean/#1f3e78145890

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