What Does a Yield Curve Have to Do with a Recession?

What Does a Yield Curve Have to Do with a Recession?

  • The yield curve – and a potential inversion in the yield curve – has been the subject of much concern in the markets recently and caused a sharp sell-off this past Tuesday.
  • An inverted yield curve, defined broadly as short-term bonds paying more than long-term bonds, can signal that growth may be slowing after having peaked, but doesn’t necessarily mean a recession or market crash is imminent.
  • Most recessions in modern history have been preceded by an inverted yield curve. However, there have been false positive in the past where inversions did not result in a recession. In addition, according to the Schwab Center for Financial Research, the lag times between an inversion and a subsequent recession have been long and highly variable – anywhere from a few months to more than two years. As such, an inversion is certainly not the best timing indicator for a recession.

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The information contained in this presentation does not purport to be a complete description and is intended for informational purposes only. Any opinions are those of the content creator and not necessarily those of the named advisor(s), JWC or JWCA.  It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

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