Feb 05 – This video from the Wall Street Journal explains why investors and strategists pay so much attention to the yield curve for signs of an imminent recession or bear market. It dives into what makes up the yield curve, what causes it to invert and what it is telling us about the economic environment currently.
As the video says, "Inverted yield curves can often but not always predict a recession." Investors and economists look at the way the curve bends to predict the health of the economy based on two different levers or forces that affect its shape.
Toward the end of 2018, investors worried the global economy was slowing down and they put more money in long-term bonds. When short-term interest rates go up and investor sentiment go down, the yield curve starts to flatten and can eventually invert.