Question

Why yield curve inverted before recession?

Answer 1

Answer:

An inverted yield curve is when the yields on the bonds with a shorter duration are higher than the yields on the bond have a longer duration. It is an abnormal situation that often signals an impending recession .

Explanation:

The 2/10 inversion has historically been a very reliable indicator for a future recession . However, the curve has been inverted for several months with 3 - month treasury bills yielding higher than 10 year treasuries .

Answer 2

In Financial Economics,an yield curve is a graphical curve which depicts the relationship between treasury bond yield rate in US and the different levels of maturities of the bond.

Explanation:

• An yield curve is upward sloping,indicating a positive relationship between the yield rate of the treasury bond and its different maturity levels.
• Inverted yield curve basically implies that the short term treasury bond rates are greater than the long term bond rates and any short term investment plans would be relatively riskier than the long term ones.
• As the short term rates of the bonds are greater than the long term bond rates in the inverted yield curve and a considerable difference in the risk factor involved between short term and long term investments,it implies a potential recession in the economy in near future or in short run.