, Columnist
Bond Yield Curve’s Key Part Isn’t Signaling a Recession
The gap between three-month Treasury bills and 10-year notes is showing no signs of distress.
No cause for panic.
Photographer: Tim Boyle/Getty Images
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There are no sure things in markets except maybe the bond yield curve’s seemingly remarkable ability to predict recessions.
In short, yields on longer-term bonds are usually higher than those on shorter-term ones to compensate investors for the greater risk of bad things happening like faster inflation and default. But in the rare case when longer-term yields fall below shorter-term ones, the so-called yield curve is said to have inverted. This is an ominous sign because every recession since the 1950s has been preceded by an inverted yield curve.