Yield Curve. Why Should You Care?

November 22, 2017
Posted in Economics
November 22, 2017 Greg Steinberg

Yield Curve. Why Should You Care?

US Treasuries bonds and notes have different yields based on their maturity. For example, 30 year bonds should yield more than a 5 year US Treasury. The yield curve is the difference between the longer dated maturities yield and shorter dated yields.

Normally, this should be upward sloping, with 30 years being on the right, and shorter maturities to the left. However, preceding all recessions, this flattens out and eventually inverts, meaning 30 years yield less than 2 years.

yield curve

What is happening now is that the curve is flattening out, and raising the rates by the Fed will only make matters worse.

Once the curve inverts, look for the Fed to cut rates, and bring down the short end of the curve. The Fed controls the short end of the curve. When the say they are raising rates, they are saying that they are raising the short yields. Remember, the Fed barely raised rates after the great recession in 2009, so they really don’t have a lot of room to play with. The Fed will be left with negative rates, or more QE.

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