Here’s what the inverted yield curve means for your portfolio

Here’s what the inverted yield curve means for your portfolio


Catherine Yeulet | Getty Images

What the inverted yield curve means

Generally, longer-term bonds pay more than bonds with shorter maturities. Since longer-maturity bonds are more vulnerable to price changes, investors expect a “premium,” explained Preston Caldwell, head of U.S. economics for Morningstar Research Services.

“In normal times, the yield curve slopes upwards,” he said. But there’s currently a downward sloping curve, also known as an “inverted yield,” with the 2-year Treasury paying more than the 10-year Treasury

We are positioning for a U.S. recession in 2023, says JPMorgan's Elyse Ausenbaugh

While many experts believe the inverted yield curve is one signal of a future recession, Caldwell said it’s more “correlative,” showing how the markets expect the Federal Reserve to respond in the near term.  

What’s more, he said there’s “too much focus” on the “will there or won’t there be recession” question, and not enough attention on the severity of a possible recession, which the yield curve doesn’t show, he said.

‘Real economic indicators are going to suffer’ 

While a yield curve inversion is only one signal of a possible recession, it shouldn’t be ignored, particularly at the lower end of the curve, experts say.

“Economists have a very, very consistent record of not forecasting recessions,” said Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University. “The yield curve is not perfect, but it does better in general than standard forecasts.” 

Factors like a once-in-a-100-year global pandemic and the war in Ukraine make it difficult to compare trends based on past data, Barbera said.

However, it “certainly looks like short rates are going up until that inflation rate breaks in a big way,” he said. “And unfortunately, if we look at the history of that dynamic, it’s likely that real economic indicators are going to suffer alongside or ahead of that break for inflation.”  



Source

Here are the retailers raising prices as Trump tariffs take hold
Business

Here are the retailers raising prices as Trump tariffs take hold

A person picks out clothing in a store as retailers compete to attract shoppers and try to maintain margins on Black Friday, one of the busiest shopping days of the year, at Woodbury Common Premium Outlets in Central Valley, New York, U.S. November 24, 2023.  Vincent Alban | Reuters Consumers who hoped tariffs would not […]

Read More
This is why Jamie Dimon is so gloomy on the economy
Business

This is why Jamie Dimon is so gloomy on the economy

Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023. Tom Williams | Cq-roll Call, Inc. | Getty Images The more Jamie Dimon worries, the better his bank seems to do. As JPMorgan […]

Read More
Summer rentals in the Hamptons are down 30%
Business

Summer rentals in the Hamptons are down 30%

Key Points Summer rentals in the Hamptons are down 30% from the same period in previous years, according to Judi Desiderio of William Raveis Real Estate. Brokers who focus on ultra-high-end rentals are seeing an even bigger drop and say their rental business is down between 50% and 75%. Some renters may be holding out […]

Read More