What is the yield curve -- and why it matters

Posted August 14, 2019 8:00 a.m. EDT

— The bond market is flashing a big neon caution sign.

Yields on 2-year US Treasury bonds dipped below the yield on the US 10-year bond Wednesday morning. It was the first time the 10-year yield was below the 2-year yield since 2007 — just before the Great Recession. Both were hovering around 1.62%.

In another worrisome sign, the yield on the 30-Year US Treasury fell to a record low Wednesday of about 2.06%.

This is significant. When shorter-term rates are higher than longer-term bond yields, that is known as an inverted yield curve. The 3-month US Treasury already inverted versus the 10-year this spring. Yield curve inversions have often preceded recessions and are a sign of just how nervous investors are about the immediate outlook for the economy. They are demanding higher rates for short-term loans, which is not normal.






Stock market futures plunged Wednesday morning following the yield curve inversion, setting Wall Street up for a sour session just one day after a truce in the trade skirmish led to a massive market rally.

