Principled Thoughts

The Yield Curve—what it is, what it means to the economy, where we are, and what comes next


In financial markets there are no sure things—and, as financial advisors, we cannot (and would be foolish to try to) use the word “guarantee.”  But if advisors and investors ever looked for (or accepted anything as) a sure thing, there is a leading economic indicator with a perfect record.  Every modern US recession was preceded by an inversion of the yield curve by anywhere from around 18 to 24 months.

Therefore, it should not be a surprise that last week when the interest rate for 5-year government notes dipped below that of shorter dated securities (an inversion), it sent US equity markets lower on concerns of a looming recession.

While this leading indicator did trip the alarms last week, we’re not concerned—yet!

Take a look at our market commentary addressing the yield curve—what it is, what it means to the economy, where we are, and what comes next.


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