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BREAKING: Recession News
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Why The Yield Curve Inverts Before A Recession (The Real Reason)
The yield curve has long been considered an effective predictor of economic recessions. Whenever the yield curve inverts, meaning short-term interest rates are higher than long-term rates, alarm bells start ringing in the financial world. This phenomenon has accurately signaled the onset of most economic downturns in recent history. But what is the real reason behind this peculiar behavior of the yield curve?
To understand this, let’s first delve into what the yield curve represents. It plots the interest rates of fixed-income securities, such as government bonds, as a function of their respective maturities. Typically, long-term bonds pay higher interest rates than short-term bonds to compensate investors for the increased risk exposure associated with locking their money in for an extended period. This relationship forms the upward sloping yield curve that is considered normal in healthy economic conditions.
However, when the economy is on the cusp of a recession, investors become increasingly pessimistic about the future. They start to anticipate a decline in economic activity, which leads them to seek safer assets, such as long-term bonds. Consequently, the demand for long-term bonds increases, driving their prices up and, inversely, pushing down their yields.
At the same time, central banks often respond to economic weakening by lowering short-term interest rates to stimulate borrowing and spending, hence injecting liquidity into the system. As a result of this monetary policy, short-term bond yields decrease. When the narrowing spread between long-term and short-term yields reaches a critical point, the yield curve inverts.
The real reason behind the inversion can be boiled down to two interconnected factors: investor sentiment and central bank actions. Both play crucial roles in shaping the shape of the yield curve and signaling an impending recession.
1. Investor Sentiment: As mentioned earlier, investor sentiment plays a significant role in driving the demand for long-term bonds. When investors lose confidence in the economy, they seek the safety of long-term bonds and sell off riskier assets. This heightened demand drives up the price of long-term bonds and, as a consequence, pushes down their yields. The inversion of the yield curve, therefore, represents the collective pessimism of investors regarding the future of the economy.
2. Central Bank Actions: Central banks have a significant influence on the yield curve through their monetary policy measures. In response to economic weakness or the potential for recession, central banks often adopt an expansionary monetary policy. By lowering short-term interest rates, they aim to stimulate borrowing and investment, thereby boosting economic activity. This, in turn, leads to a decrease in short-term bond yields. Since the yields of long-term bonds are influenced by both market forces and central bank policies, a decline in short-term rates can cause the yield curve to invert.
It is important to note that the yield curve inversion is not the cause of an economic recession but rather a symptom of the cautious sentiment pervading the market. It captures the correlation between investors’ expectations and central bank actions, and acts as a canary in the economic coal mine, indicating an elevated risk of a recession.
In conclusion, the real reason why the yield curve inverts before a recession lies in a combination of investor sentiment and central bank actions. As pessimism builds up among investors and central banks implement expansionary monetary policies, the demand for long-term bonds rises, driving down their yields. While the yield curve inversion alone cannot be blamed for the onset of a recession, it serves as a valuable signal of an impending economic downturn, allowing investors and policymakers to be prepared and take appropriate actions.
China is a big market, makes sense a billionaire might have an advisor that can read Chinese, watching their media.
Zero risk in treasury? Lending money to an already bankcrupt state like the US is risk free? I dunno….
George, ZeroHedge and other alternative media were publishing China lock-down news starting in December ‘19. Many of us loaded up on supplies before MSM covered the stories — we didn’t need TS intelligence to know that the virus would spread around the world.
Guys! Does this mean buying shorter-term bonds will increase once the curve corrects?
Given the current economic difficulties that the country is experiencing in 2023, how can we enhance our earnings during this period of adjustment? I cannot let my $680k savings vanish after putting in so much effort to accumulate them.
GOOD STUFF!!
How can someone from Europe purchase treasury securities?
Covid was made and spreaded by those evils gangs. Of course they know, snd Trump didn't.
We must find that woman!
I remember learning about the inverted yield curve in one of my classes last semester and I couldn’t figure out why it was already inverted in 2019 despite the public not knowing about the consequences of Covid and that it would have led to a recession, thanks to you I finally got the answer.
This recession is most likely the result of an external factor. For the first time in decades, the United States is losing its clout as a federal reserve currency. They don't have any more economies to use to control inflation, and less money is being spent on stock and oil trading than in the past. They all lend support to the idea that a new multilateral world order is in the works.
You strike me as an honest man who intends to accurately inform the public, so I’ll share with you why I disagree with the claim that secret intelligence was necessary for the President to understand the situation. Reporting was being done early in January that an epidemic was breaking out in Wuhan. By the second week of that month there were two dedicated Reddit pages with 10,000+ members actively reporting from Wuhan. These were both open, public forums.
Finally, there were two papers published in the third week of January by SARS researchers from a university in Hong Kong (which had been studying coronaviruses after the original SARS outbreak in the early 2000s). They predicted that the virus had already spread globally based on data collected in Wuhan directly. It was at this point that Eastern Asia began buying up all the masks, causing out of stock on Amazon even in the US.
Incidentally, the Hong Kong researchers were asked by the Chinese government to leave Wuhan in early February, and the on-the-ground reporters were silenced, cutting off direct information through public channels. By that point in the second week of February, me, a normal American civilian with no connections or clearance, was telling everybody that a pandemic was on the way, and not a single person believed me for another two months.
Just wanted to share this with you. The information was available if you stumbled across it. I can dig up the papers, give you information on the Reddit groups, and potentially retrieve some of my text messages if you need evidence of my claims.
And why would he go on public tv? I expected that, too. Wasn’t so difficult although l needed to know incubation time
I actually understood 90% of what you said.
thank you , your video's are priceless.
Interesting info. The bigger lesson is, the more you can make everyone think they are a victim of government the more people like your videos.
Another excellent video, George. Thanks!
You didn't need insider info when this was already public…
"Fed Preps Second Blast of Cash With Repo Market on Edge." 17-Sept-2019 Bloomberg.
"Why the Repo Market Is Such a Big Deal—and Why Its $400 Billion Bailout Is So Unnerving ALEXANDER SAEEDY (23 Sept 2019) Fortune.
The writing was already on the wall that another QE bailout to save the system was coming.
Legendary video George! Your content is so insightful.
Mainstream media was about 2 months behind, Macrovoices had a special segment on how out of control the virus was in Wuhan in Dec ‘19, zerohedge was writing about it then too. Plenty of time
Have you talked with Mr R. Werner? August 2019 was the Jackson Hole where BlackRock was invited to talk about ways to create inflation a helicopter money.
I heard about the corona virus in Nov-Dec 2019 from YouTuber Money GPS, reading of the Chinese transportation charts and the Wuhan Lockdowns.
Very informative. Thanks for being a great teacher!
Did DT not say he wanted to stop traffic to and from China in Jan 2020? With the economy humming along, noway the Dems would beat DT in the 2020 election. DT was called racist, xenophobic, and the impeachment move continued on. Well by golly they had an answer. Shut the country down. The full stories will continue to drip out. Why is the 20 year T Bond treated like a redheaded stepchild?
Great video. However, the Yield curve had been declining since 1985. The Covid low created a pivot point in the Rates bear market. Look at the rate chart. That has bottomed and we're now in a new bull market of rates for the months/years to come. Covid created the floor and the bounce with that flush out to zero rates to stimulate the economy post the global shutdown. The first 5 wave impulse on the 10 year yield chart should top out around 4.8 to 5% area. Then we will see a pullback. So the Fed will pivot on increasing rates very soon. When they pivot, it is highly probable that it will crate a big decline in the markets. As seen numerous times before, when the Fed has pivotted.
Recessions are a normal and healthy part of the business cycle as infinite growth is obviously impossible.
Central bank monetary policy is a misguided attempt to delay the inevitable and when it finally comes it is exponentially worse that it otherwise would be.
Central banks are worse than useless. They are toxic institutions that exist for the sole purpose of propping up the fractional reserve Ponzi at the expense of the general public while also enriching the State.
Let banks fail. Even supposedly "systematically important" ones.
Well done George!
Revolutionary Capitalism has convinced me that macro is fixed by macro cheaters.
George you are a God send. Thank you do much for what you do.
Ever heard of Joe Brown (another heritic at Heresy Financial)? I would pay to be a fly on the wall just to listen to a cinversation the two of you would have.
Right now, things appear odd. The US dollar is becoming less valuable due to inflation, but it is becoming more valuable when compared to other currencies and commodities such as gold and real estate. People are flocking to the dollar because they believe it is more secure. I'm concerned that rising inflation may cause my $420,000 in retirement savings to devalue. We don't have any other places to deposit our money.
Tucker Carlson interview with Robert Kennedy Jr.
I have to DISAGREE. November, 2019, watched a documentary on the coronavirus in China. One of the nain people being followed was an Australian man talking about being locked inside and waiting / hoping to get him and his Asian wife out of there and back to Australia. They were showing government lock down back then.
John 6:37 All that the Father giveth me shall come to me; and him that cometh to me I will in no wise cast out.
Ominous lack of usual sign off…
I'm a bit of a bond dunce. Can someone please detail for me how a 1% drop in yeild represents a capital gain of %20 before even factoring in coupon payouts? That doesn't seem to add up to me.
What’s solution. Do we buy TLT treasuries now. Since they’re at high yield and will be dropping?
Excellent review insightful and timely.
So if i got this straight, the global elite actually CAUSE the yield curve to invert because if what they do with what they know, is that right?
Pretty earth shattering if so!
Soon, George explaining chem-trails
So is it time yet for us to buy as well?
…If they are buying the long end, why are prices going down??? lol
Eh…. Aussie here, my family was already following the covid situation before it got to western countries and crashed the market…. In january 2020
Wasn't that hard to predict it was a big deal…The stats from China were already alarming.
Where has George been? No "3 easy steps?" What happened to George? This must be a clone!
They knew about the plandemic because they planned it. They hoped it would be much worse but their timeline got disrupted by DJT.
Well done george. I like the analogies and the us and them levels of insider trading.
Stock Market = Gambling Den
So im thinking of buying long dayed treasuries soon as i think they may increase 1 or 2 more times and then the economy will slowly crash. So if Ive understood correctly, the treasuries value will increase when something bad happens, because they always decide to reduce interest rates once things start to go wrong?