The Bond Market May Be on the Verge of Sending a Recession Warning. Here's What the Smartest Investors Are Doing.
The yield curve is flattening and could invert, a signal that a recession may be coming.
Overview
The yield curve -- the difference in yields between long-term and short-term bonds -- is flattening and on the verge of inverting. That's a classic recession warning that all investors need to pay attention to and act on now.
Here's the back story on the yield curve: Normally, short-term bonds should have yields below those of longer maturity bonds. That's because investors typically demand a higher return for locking up their capital for longer periods. So, if you chart yields against maturity, the yield should rise as you go out in time.
Details
But sometimes the difference between long and short yields flattens, or even inverts, with longer-maturity bonds yielding less than shorter-term bonds. This is often measured as the difference between the yields on the two-year and 10-year Treasury securities.
Source
Originally published at www.fool.com.