What is the yield curve saying?

An inverted yield curve usually means a recession lies ahead. Is this time different? And does it matter? John Stepek explains.

941_MW_P15_Ben_Bernanke

Bernanke: it wasn't different that time
(Image credit: 2018 Getty Images)

An important section of the US yield curve inverted at the end of last month. What's a yield curve, and why should you care? We explain in detail in the box below, but long story short, when a yield curve inverts, it means that markets expect interest rates to fall rather than rise in the future, which is a warning sign that slower growth, or even a recession, lies ahead. In this case, interest rates on three-month US government bonds (Treasuries) moved higher than those on ten-year Treasuries, sparking a flurry of worried press coverage. However, the inversion didn't last long. Earlier this week, we got unexpectedly good news from both China and the US (their manufacturing sectors saw healthier activity last month than markets had anticipated), and the yield curve un-inverted. So do we need to worry or not?

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.