The Yield Curve Has Inverted!

Generally speaking, the yield on a 5-year treasury bond should be higher than it is on 3-year bond. After all, the longer term means you’re taking on a little more risk. Today, however, after years of breathless waiting, this is no longer true. The yield curve has “inverted,” and as I type this both 3- and 5-year bonds are yielding 2.84 percent.

The conventional wisdom says that this is because investors are betting on the Fed reducing interest rates in the near future. With lower rates around the corner, investors want to lock in the higher rates currently available for as long as they can, so they’re snapping up 5-year treasurys, which in turn has reduced their yield below the 3-year rate.

That all makes sense, but why do investors think the Fed will shortly be reducing interesting rates? Because a recession is coming.

That’s the conventional wisdom, anyway. You may decide for yourself whether to believe it.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America will move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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