inverted yield curve


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Related to inverted yield curve: Normal Yield Curve, Flat Yield Curve

Inverted yield curve

When short-term interest rates are higher than long-term rates. Antithesis of positive yield curve.

Inverted Yield Curve

A yield curve in which the long-term yields on bonds are lower than short-term yields. A normal yield curve trends upward because bondholders expect a larger interest rate for a longer investment; however, if a yield curve turns negative, it indicates that the market believes that demand for long-term debt securities is increasing or will increase, which will drive yields downward. Higher demand for bonds usually occurs when investors believe that stock prices will fall. As a result, an inverted yield curve is a highly bearish indicator and indeed is seen as a predictor of a coming recession. An inverted yield curve is the rarest yield curve. It is also called a negative yield curve.

inverted yield curve

References in periodicals archive ?
Investors and business people are conditioned to know what an inverted yield curve means, and a natural cautiousness creeps into their decision-making: They become less likely to invest aggressively or hire employees.
The occurrence of inverted yield curve is an off-equilibrium phenomenon in the process of adjustment in the output and the interest rates after an adverse shock.
We had the inverted yield curve for really the better part of a year at this point," he said.
In fact, each of the six previous recessions were preceded by an inverted yield curve.
He also explores the conundrum of the inverted yield curve and offers his outlook for Fed policy and U.
Third, and perhaps most importantly, the Federal Reserve may have tightened monetary policy too far as reflected in the inverted yield curve, a strong indicator of a future slowdown.
The Fed will stop raising rates by January 2006 to avoid an inverted yield curve.
The idea is that an inverted yield curve can signal an upcoming recession.
The stance of monetary policy remains firm, with high real interest rates and a modestly inverted yield curve.
Monetary policy was now fairly restrictive, as evidenced for example by relatively high real rates of interest, a slightly inverted yield curve, and the slow growth of the monetary aggregates.
From 2003 onward, the L/H industry has been experiencing another challenging investment environment, with turbulent equity markets, a flat to slightly inverted yield curve and tight credit spreads.
We don't see an inverted yield curve around the corner," says Stovall.