On March 22, tucked in beside much more dramatic headlines — the completion of the Mueller report, the defeat of ISIS, the removal of sanctions against North Korea — was a much less interesting, though perhaps equally important, headline: For the first time since 2007, the yield on 10-year Treasury securities was lower than the yield on 3-month Treasury securities shown by the green line in the US Treasury Yield Curve below.
The notion that interest rates on short-term loans are higher than interest rates on long-term loans offers a lot to consider in terms of its impact on borrowers, lenders and the economy at large. However, one key takeaway is that a so-called “inversion” of the yield curve is widely believed to be the harbinger of a recession.
In light of this event, investors might be tempted adjust their strategies to a more conservative posture; however, the yield curve is only one measure of the economy. And while an inverted yield curve is worth monitoring, it is not a reason to panic. If the yield curve has triggered your flight response I’d encourage you to consider the following before...
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