If you consider yourself an educated investor, there are two things you may already know about an inverted yield curve. First, it describes a period in which short-term bonds offer higher interest rates than longer-term bonds. Second, it has historically been a reliable indicator of a coming economic recession.
That might be good enough to correctly answer a “Jeopardy” clue, but it doesn’t explain the real-world impacts. This column attempts to fill in the gaps.
The yield curve is currently inverted and has been for more than a year. That is to say, for the last 12 months, two-year U.S. Treasury bonds have yielded more than 10-year U.S. Treasury bonds. One of the most significant effects of these conditions is the pressure it puts on the banking system.
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