Economy

Widening Inverted Yield Curve: What a Fresh Look Implies Today

According to InvestorWords, an inverted yield curve is:

An uncommon situation in which long-term interest rates have lower yields than short-term interest rates. This is often a sign that interest rates are expected to decline. also called negative yield curve.

According to InvestorGuide, an inverted yield curve is:

A situation in which long-term debt instruments are returning a lower yield than short-term notes, resulting in a downward tilting yield curve. An inverted yield curve is generally seen as an indication that investors foresee an economic Downturn. Compare to normal yield curve.

Now let’s look at the current news headlines and definitions shown in major financial media concerning inverted yield curves:

  • Bloomberg headlines: The Inverted Yield Curve Matters, Signals A Downturn (Radio); Key Slice of U.S. Yield Curve Becomes Most Inverted Since 2007; Morgan Stanley Says U.S. Yield Curve Now Clearly Spells Downturn; Three Fed Cuts on Bond-Market Radar as Curve Inversion Deepens
  • Wall Street Journal headlines: Global Bond Yields Fall Near Multiyear Lows; Treasury Yields Fall to Lowest Level Since 2017 Amid Worries on Growth, Trade; A Tale of Two Yield Curves
  • CNBC: Bond flash economic warning as 3-month yield tops 10-year rate by most since financial crisis; 10-year Treasury yield drops to 19-month low as trade fights threaten US growth; Bond market flashes recession warning as portion of the yield curve inverts again

Anyhow, we wanted to show how the current yield curve inversion looks using more numbers on a Treasury table rather than a series of plots and curves.

Maybe we should start watching the 20-year and 30-year Treasury yields more than the 10-year yields. That 30-year Treasury yield was last seen at 2.67% on Wednesday, versus 2.70% on Tuesday and 2.75% last Friday. The 30-year yield was up at 2.92% on May 1, with a high close of 2.94% on May 2. That’s a drop of almost 30 basis points in less than a month.

If the Federal Reserve really wants to be more proactive in getting longer-dated yields higher, maybe it should consider using the high demand by investors in the bond market to unload more of their longer-dated Treasury holdings.

Below is the Treasury table from the Daily Treasury Yield Curve Rates: