Inverted Yield Curve

An inverted Yield Curve is a financial phenomenon that occurs when long-term Interest Rates fall below short-term Interest Rates for Bonds of the same Credit quality. This inversion suggests that investors expect future economic slowdown or recession, leading them to seek the safety of long-term Bonds despite lower yields.

Typically, a normal Yield Curve slopes upward, indicating higher yields for longer maturities. However, when the curve is inverted, it can signal decreased investor confidence in the economy.

For example, if a 10-year Treasury bond yields 1.5% while a 2-year Treasury bond yields 1.8%, the Yield Curve is inverted. Historically, inversions have often preceded economic recessions, as seen in the cases of:

• 2000: The Yield Curve inverted before the dot-com bubble burst.
• 2006-2007: An inversion preceded the financial crisis of 2008.
• 2019: An inverted Yield Curve raised concerns about a potential recession in 2020.