{"id":31360,"date":"2023-07-04T16:41:48","date_gmt":"2023-07-04T20:41:48","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/what-the-inverted-yield-curve-really-means-it-may-not-be-recession\/"},"modified":"2023-07-04T16:41:49","modified_gmt":"2023-07-04T20:41:49","slug":"what-the-inverted-yield-curve-really-means-it-may-not-be-recession","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=31360","title":{"rendered":"What the Inverted Yield Curve Really Means. It May Not Be Recession."},"content":{"rendered":"
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The bond market inversion reached its steepest since 1981 this week. When investors charge the government more to borrow for two years than for 10 years, it\u2019s often seen as a sign that a recession is coming.\u00a0<\/p>\n

But the curve has been inverted for a year now\u2014long enough to raise questions about whether this anticipated recession is actually going to arrive. And it might not\u2014so far, the economy has been more resilient than most had expected in the face of aggressive Federal Reserve interest-rate increases.<\/p>\n

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At the most basic level, an inverted yield curve simply means that bond investors expect interest rates to be higher in the short term of two years than over the longer term of 10 years.<\/p>\n

Normally, that\u2019s not the case. Typically, investors will demand higher interest rates on longer-term bonds because they\u2019re parting with their money for longer. If traders are willing to charge a lower interest rate on longer-term debt, the usual thinking is that they expect the Fed to have to slash interest rates as the economy weakens.<\/p>\n

The current abnormality stems from expectations that the Fed will keep raising interest rates for now. The two-year yield has risen to almost 5%, the highest since March, up from around 3.8% in April after data showed economic strength that could give fuel to inflation.<\/p>\n

The 10-year yield hasn\u2019t risen as much. The yield is now about 3.8%, up from around 3.3% in April. In other words, traders have raised their expectations for Fed rates in the near term by a lot more than they have changed expectations of longer-term Fed rates.\u00a0<\/p>\n

That might mean that investors expect a recession. Higher interest-rates now will push down economic demand, forcing the Fed to cut rates later.<\/p>\n

But it could also just mean the market doesn\u2019t expect the Fed to keep raising rates forever. It\u2019s possible that the Fed raises interest rates enough in the short term to bring inflation into line without crushing the economy, and then finds room to lower rates again later. This scenario is what is sometimes called the \u201csoft landing\u201d for the Fed, or \u201cimmaculate disinflation.\u201d<\/p>\n

The yield curve is consistent with both of those stories. It won\u2019t be clear which one is right for a long time yet.<\/p>\n

Write to Brian Swint at brian.swint@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The bond market inversion reached its steepest since 1981 this week. When investors charge the government more to borrow for two years than for 10 years, it\u2019s often seen as a sign that a recession is coming.\u00a0 But the curve has been inverted for a year now\u2014long enough to raise questions about whether this anticipated […]<\/p>\n","protected":false},"author":1,"featured_media":31361,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-31360","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhat the Inverted Yield Curve Really Means. It May Not Be Recession. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The bond market inversion reached its steepest since 1981 this week. 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