Wednesday, February 12, 2020

Yield Curve Inverts

In the textbook, we discussed a normal, or upward sloping, term structure, and an inverted, or downward sloping, term structure. The U.S. Treasury yield curve inverted again on Monday, after inverting at the end of January and in March 2019. An inverted yield curve has preceded the last seven U.S. recessions. However, several analysts are not convinced a recession will result from this inversion. U.S. Treasuries are regarded as a safe haven investment. Given economic issues around the world, the low 10-year yield may be driven by the demand for this bond, not U.S. economic conditions. Here is a question for you: Notice in the first sentence (and in the textbook), we discuss the term structure, but then change to the yield curve. What is the difference between the term structure and a yield curve?