Inverted Yield Curve
An inverted yield curve is a type of yield curve in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This phenomenon is the opposite of the more common situation, in which long-term debt instruments have higher yields than short-term debt instruments. An inverted yield curve is often seen as a sign of an impending recession, as it indicates that investors are expecting lower economic growth and inflation in the future.
History of the Term
The term inverted yield curve was first used in the late 19th century to describe the situation in which long-term debt instruments had lower yields than short-term debt instruments. This phenomenon was first observed in the United States in the late 1800s, when the yield on long-term bonds was lower than the yield on short-term bonds. Since then, inverted yield curves have been observed in other countries as well.
In the United States, inverted yield curves have been observed in the past few decades, most notably in the late 1990s and early 2000s. In both of these periods, the yield on long-term bonds was lower than the yield on short-term bonds, indicating that investors were expecting lower economic growth and inflation in the future. This phenomenon was seen as a sign of an impending recession.
Comparison Table
Type of Debt Instrument | Yield |
---|---|
Short-term | 3.5% |
Long-term | 2.5% |
Summary
An inverted yield curve is a type of yield curve in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This phenomenon is often seen as a sign of an impending recession, as it indicates that investors are expecting lower economic growth and inflation in the future. For more information about inverted yield curves, you can visit websites such as Investopedia, The Balance, and Bloomberg.
See Also
- Yield Curve
- Interest Rates
- Bond Yields
- Treasury Yields
- Inflation
- Recession
- Credit Risk
- Duration
- Maturity
- Yield Spread