The yield curve often discussed in financial media outlets refers to a graph depicting yields on U.S. Treasury bonds at various maturities. On this graph, the x-axis represents the time until a bond matures and the y-axis represents the interest rate. Typically, the graph slopes upward from left to right meaning bonds with longer maturities pay more in interest than those with shorter maturities. The yield curve is considered inverted when this relationship flips, due to investor concern about economic weakness in the near future. The yield curve inversion is big news because it has predicated every recession since 1975. The impending recessions came months or years following the inversion, so from a timing perspective it is ominous but not omniscient. The yield curve inverted back in March so we know a recession is coming but we don’t know when. After more than a decade of expansion it is a safe bet that the recession will occur sooner rather than later. In recessionary times businesses in the energy, utilities, healthcare and consumer staples tend to outperform other sectors.
If you have clients in the aforementioned sectors, Grow Michigan can help.Yield curve inversion, now what?