Why everyone is so hooked on the "yield curve"

• The gap between US Treasury yields at three months and ten years has reversed for the first time since 2007.
• When this happens, it is a bad sign for investors: the reversals preceded the nine American recessions since 1955.

A warning was issued Friday on the bond market, causing stocks to fall as investors feared that there is a sign of recession there.

When interest yields on 10-year US Treasury bonds become equal to or lower than two-year bonds, recessions have often followed.

Treasury yields at 10 years, which were already at their lowest in a year, fell again Friday. This time, they exceeded the yield of the bond at three months.

This "reversal" was the first since 2007, said Bloomberg. The spread between yields suggests that bond investors worry more about short-term profitability than about long-term ones. This means that they are banking on a decline in US growth.

The yield curve was reversed between yields of two and ten years before the recessions of 1981, 1991, 2000 and 2008. A reversal of this part of the yield curve preceded the nine US recessions since 1955. Sections Curves have reversed at different times without the recession occurring, but major reversals are often a leading indicator of unease or wider economic uncertainty.

The "curve" is the line that traces the difference between them in time. At present, this line tends to zero or flat. If the line falls below zero – an "inversion" in which the yield of the two-year bond would be greater than the 10-year bond – it usually means that something is not going anywhere in the market.

Why? Because a flat or negative yield curve suggests that investors think that keeping one's money in short-term bonds is more uncertain than bonds that yield in a decade. Think about it. This position does not make sense. Why would you be more sure of 2028 than 2020? Thus, when the curve is reversed, it indicates that something very risky is happening in the short-term badet markets.

Hey hop, the recessions follow.

The curve reacts to many things. For example, he reacts to investors' views on the risk badociated with other badets. If investors think that the world will suddenly become very risky, very quickly, they will end up in bonds that they believe are safe.

This was demonstrated by mbadive stock sales last Friday and Monday, while 10-year US bonds rose 0.4% at 10:10 am in London (6:10).

Chinese debt. Trump's trade wars. Brexit. Italian debt. Fears of global growth. At present, much of the economic and political world seems to be entirely composed of uncertainty. This is bad today. We will surely have set the world in 2028?

So, the flat curve could indicate a little bit.

Investors will closely follow the curve in the coming days to badess the likelihood of an impending recession in the United States.