The Yield Curve Is Disinverting. Why Should I Care?
The US Treasury yield curve has a long history of raising alarms among investors and economists. That’s mostly because when it’s flipped upside down from its usual upward slope in what’s called an inversion, traders start getting anxious about the health of the economy. Almost every recession since 1955 has been preceded by an inverted curve, except recently when it inverted in 2022. When the curve disinverts, or returns to its normal shape, as it did on Sept. 4, some say that could signal a downturn is soon approaching. Still, despite the 2022 inversion, a slump has yet to materialize. This has led some to again question whether the curve’s shape is a reliable harbinger of recession.
It’s a visual representation of the difference in the compensation investors will receive for choosing to buy shorter- versus longer-term debt. Most of the time, bond investors demand a higher return, or yield, for the greater uncertainty that comes with locking away their money for longer periods. So yield curves usually slope upward.