Historically, the $15.4 trillion U.S. Treasury market has offered one of the most reliable barometers for the health of the American economy. Investors are particularly fixated on what’s known as the yield curve, which depicts the yields on government debt of different maturities at a given point in time.
The curve usually slopes upward as investors typically demand higher returns for locking up their money for a longer period. Occasionally, the curve flips, with yields on short-term debt exceeding those on longer bonds. That’s normally a sign investors believe economic growth will slow and interest rates will eventually fall. Research by the Federal Reserve Bank of San Francisco has shown that an inversion has preceded every U.S. recession for the past 60 years.
