The yield curve was once just a wonky graph for academics and policymakers. But in recent years it has become a way to forecast looming recessions. The curve has helped predict every recession over the past 50 years. That means the curve accurately predicted even largely unforeseen downturns like the dot-com bubble of 2001 and the Great Recession in 2007.
As a result, news of yield curve inversions can now send markets tumbling. Policymakers keep a close eye on even small changes in the curve’s composition.
So how did this simple graph showing U.S. Treasury bond interest rates grow into one of the most reliable recession indicators we have? And what does a yield curve inversion really mean?
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How The Yield Curve Predicted Every Recession For The Past 50 Years…(read more)
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The yield curve has been a reliable predictor of every recession for the past 50 years. The yield curve is a graph that shows the yields on bonds with different maturities. The most commonly used for analysis is the difference between the 10-year Treasury bond and the 2-year Treasury bond.
A healthy economic cycle is characterized by a normal yield curve where long-term bonds have a higher yield than short-term bonds. This reflects the market’s expectation that short-term interest rates will be lower in the future than they are today.
However, when the yield curve becomes inverted, where short-term yields are higher than long-term yields, it is an indicator of an impending recession. This is because investors believe that short-term rates will be lower in the future, possibly due to a weakening economy, and are therefore willing to accept a lower yield on long-term bonds to lock in a higher return.
The yield curve has predicted every recession in the past 50 years, including the 2008 financial crisis, the 2001 dot-com bubble burst, and the 1990-1991 recession. The inverted yield curve is a strong signal of an impending downturn, and it has been accurate in forecasting the timing of a recession in most cases.
The Federal Reserve often closely monitors the yield curve as an indicator of economic health and to help guide monetary policy decisions. When an inverted yield curve occurs, the Fed may lower interest rates to stimulate the economy and prevent a recession.
Some analysts argue that the yield curve may become less reliable as a predictor in the future, as global economic conditions and central bank policies become increasingly complex. However, the yield curve has been a consistent and useful tool for economic analysis and forecasting for the past 50 years.
In conclusion, the yield curve is a powerful tool for predicting recessions and has been accurate in forecasting every downturn in the past 50 years. As economic conditions continue to evolve, the yield curve remains an important indicator for investors and policymakers to monitor.
Recessions are part of the economic cycle, all you can do is make sure you're prepared and plan accordingly. I graduated into a recession (2009). My 1st job after college was aerial acrobat on cruise ships. Today I'm a VP at a global company, own 3 rental properties, invest in stocks and biz, built my own business, and have my net worth increase by $500k in the last 4 years.
Market declines, soaring inflation, a significant increase in interest rates by the Fed, and rising Treasury yields all point to additional losses for portfolios this quarter. How can I profit from the present market turbulence? I'm still debating whether to sell my $125,000 ETF/Growth Stock portfolio.
I don’t know how but you’ve managed to package an unbiased analysis that is more entertaining than the sensationalized segment of economic and financial news. Thank you for your efforts to be the signal and not the noise. I understand that the economy is currently in a downturn and that we must wait for things to get better
The financial system has been artificially pumped for over a decade to ensure big pockets were lined; and now those same hands will make a fortune in the largest transfer of wealth in human history by shorting it on the way down. Inflation does have a roll, but that's to keep everyone panicked, and focused on their bills and expenses, rather than focus on the capital crimes of politicians and corporations,I'm still at a crossroads deciding if to liquidate my $338k stock portfolio, what’s the best way to take advantage of this bear market?
That is not what the uncertainty principle from Heisenberg states 7:48min
Understanding personal finances and investing will most likely lead to greater financial independence. By being knowledgeable about money and investing, individuals can make informed decisions about how to save, spend, and invest their money. A trader made over $350k in this recession influenced market
Does anyone have link s to any websites, forums where I can see the realtime yeild curve?
The most important thing that should be on everyone's mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks, Gold, silver and digital currencies.
Not this one not even bad news could bring down the stock market it blows it up literally housing freaking data was just up inflation data And so on but the market blew up the day of housing day to be up to 7% is pretty crazy and it didn't just go up a little and went up 4% in 1.25 days bad news is causing the biggest spikes in this country's market so any more bad news and will be breaking out into a massive uptrend it looks like these markets are so corrupt its not funny
Can’t believe it predicted a pandemic!
I believe I should watch a video on "How to survive the current recession" given the state of things. Actually, it's a complete failure. The fact that some people could still earn more than $$$k in a short period of time astounded me. If that's still the case, please explain how.
Watching this video again 3 years later. What's amazing about this video is that it was made months before we ever heard the word COVID. Yes you read that correctly, the yield curve inverted months before COVID. So here we're are again in 2022/2023 with the yield curve inverted. Why? We will find in a few months… But is nevwr ceases to amaze me how the market already knows so something bad is coming.
I suggest you offset your real estate and get into stocks, A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying, cash isn’t king at all in this time!
As an elder millennial, one of the few advantages is having lived through the Great Recession. My advice. Reduce unnecessary expenses, increase your savings by investing in financial markets and do not sell. One thing I know for sure is that diversifying your income can help insulate you from much of the craziness going on in the world.
Mr Sam Deymon is also very generous with his time. He is more than available. He will answer your questions about any chart, about the market or the course very quickly.
I'd be retiring or working less in 5 years and I'm only curious how people split their pay, how much of it goes into savings, spendings or investments?? I earn around $165K per year but nothing to show for it yet
The only thing you can do is make sure you're ready and plan accordingly because recessions are a natural part of the economic cycle. I began my career during a recession (2009). So I can well say the depression and anxiety has barely started, brace yourself and do not go selling valuable assets because of a little dip
A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying, cash isn’t king at all in this time!
We need responsible fiscal budgets, austerity, and deregulation. Not going to happen under Biden.
Amazing video thank you for breaking it down !!, Despite the economic downturn, I'm so happy I have been earning $ 60,200 returns from my $7,000 investment every 13days,,
In this perilous time of recession, protecting your capital is much more important than making money. Basically because if you lose your capital, making money is much harder. ''Missing the train'' vs. ''losing your money''. There are a lot of trains, but if your money is gone, it's over. This is for stock holders.
With inflation currently %, my primary concern is how to grow my reserve of $240k which has been sitting duck since forever with zero to no gains, sure I'm all in on the long term game, but with my savings are lying waste to inflation and my portfolio losing gains everyday, I need a remedy asap.
Recession has been a norm for the past years now. Though ETF's are falling and bond yields are rising, but expositions still don’t seem convinced the Federal Reserve will pursue plans to keep increasing yield-rates until inflation and Recession is under control. I'm still at crossroads with deciding if to liquidate my $650k stock portfolio, what’s the best way to take advantage of this bear booth?
Recession is pushed by over-spending by Uncle Joe and his crew, just like Obama! It was not like that during the trump regime, every sector of the economy is starting to falter, and the population is having to cope with the highest cost of living in nearly four decades. My question is where should we put our investment money now to better prepare for the future and a liquidity crisis? I have $102,000 to grow
Natalie M Jason
A principle from Quantum Mechanics has nothing to do with people watching and reacting to a yield curve. If economists try to use quantum physics as an explenation for markets, it's always wrong!
สวัสดีคะดิฉันคิดว่าสีฟ้าจะดีแต่ที่ใหนใด้โกงเหมือนทวิเตอร์เลยที่ด่าดาวมณี/โจนส์แต่เรืองบนเตียงคะ
The most important thing that should be on everyone mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks gold, silver and digital currencies
2022 anyone?
Lol economists are a smart bunch aren't they? Only took them until 1989 to figure this out.
When the years burn everything in me, what can't be forgotten is the amorous feelings of #cz_binance that glance. Btw, so many #events have been held by #TheMera #DefiWarrior lately! And big update about #metaverse world will be released soon!