What is the reversal curve of yield?

Traditionally long -term investment pays higher interest rates than short -term investments. If investors lose confidence in the long -term economic climate, there may be higher demand for short -term investments. This demand could lead to short -term investments that apply higher interest rates or income than long -term investments. In this situation there is a reversed yield curve. Some investors and economists believe that the reversed yield curve is a predictor of recession. Most financial experts agree that the difference between the 3 -month -old Treasury Act and the ten -year revenue of the Ministry of Finance is a good indicator of the current curve of the return. Usually, the longer the investment term, the higher the risk. Higher interest rate is paid for compensation of this risk. If the 3 -month security paid a higher interest rate than 10 years of security, there would be available income curve. For example, the yield curve inverted in August 2006 and the recession began in December 2007. It is important to tIf you notice other basic factors that led to this recession. During this time, domestic values ​​and corresponding safety values ​​supported by the mortgage were roughly inflated.

The financial stability of banks and other financial institutions that have been strongly invested in these securities. Non -instability ran down to other companies and unemployment has increased significantly. There was a total lack of confidence in the economy and caused a recession. In this case, the inverted recession curve was preceded.

When consumers and institutional investors begin to see short -term investments equal to the long -term investment return, it is a flat Yield curve. The flat yield curve is generally a sign that the reverse curve of the yield will follow. As soon as short -term investments overtake long -term revenues, the yield curve is reversed. For example, when a six -month deposit (CD) in a local BancE or Cooperative Bayouts pay a higher interest rate than 12 months CD, the yield curve is reversed.

Inverted yield curves may point to the overall lack of trust in long -term economic health. In order to exist the reversal curve, there is usually high demand for short -term investments. The inverted yield curve sometimes preceded the recession, but not always. Although the 2006 recession was followed by the 2007 recession curve, the reversing yield curve in 1966 and the flat curve in 1998 did not lead to the recession.