• BBA in Finance
    Co-created with Jain University
    4.3 out of 5 by 211 learners
    2x
  • MBA in Investment Banking
    Co-created with Jain University
    4.5 out of 5 by467 learners
    2x industry demand
  • MBA in Fintech
    Co-created with Jain University
    4.4 out of 5 by 349 learners
    2x industry demand
  • Post Graduate Program in Business Management with NMIMS
    Co-created with NMIMS
    4.7 out of 5 by 669 learners
    4x Industry Demand
  • Post Graduate Program in Banking and Credit Underwriting
    4.7 out of 5 by 1376 learners
    12 X industry demand
  • Post Graduate Program In Finance And Accounting
    Co-created with Grant Thornton
    4.9 out of 5 by 238 learners
    14 X industry demand
  • Professional Certification in FinTech
    Co-created with SP Jain School of Global Management
    4.6 out of 5 by 1421 learners
    6X industry demand
  • Credit Risk and Underwriting Prodegree
    Co-created with Moody’s Analytics
    4.6 out of 5 by 1139 learners
    4X industry demand
  • Banking And Wealth Management Bootcamp
    4.6 out of 5 by 1429 learners
    3X industry demand
  • Post Graduate Program In Capital Markets
    4.7 out of 5 by 807 learners
    3X industry demand

The yield curve rightly predicted the previous seven US recessions. And it is about to wave the red flag again. Though stock markets may indicate record price highs the yield curve prediction of a recession should be considered more stable and accurate.

What Does The Yield Curve Indicate?

The plot of the yield curve tracks the short term bond rates, for example, the 2-yr Treasury yields versus the ten-year rates. The current 10-yr yield is at 2.98% lagging the 2-yr rates of 2.62% by a mere whisker of 0.36%. Such narrow differences have never been noticed for over a decade.
When the yield curve inverts, it spells huge problems as it indicates the short term bond rates are better than the long-term rates. It is this change that marks a recession and has been the precursor of the last seven US recessions. With the gap nearing inversion it could only spell a recession in a year’s time as has occurred in all seven instances before.

How Will It Impact The Bonds?

Ideally, a healthy economy is indicated when the long-term bonds yield more than short-term bonds. The bonus of a higher rate for savings and investments in the long-term Treasury bonds means lack of access to funds for more extended periods of time and this is made up for by offering higher yield rates. Both the investors and the Treasury are in a win-win situation with liquidity for the treasury and a better yield for the investor.

When the yield curve is moving towards inversion investors, have no impetus for saving in long-term Treasury bonds because of the falling interest rates. It is quite reasonable that during a recession period interest rates will fall. Factors like less competition for borrowed money, weak business environment, fewer home buyers and fewer industries investing in machinery and equipment also contribute for such fall in yield prices.

It is not the contribution of the financial markets alone that has led to this situation. The Federal Government has added to the woes of the current situation by hiking the yields on short-term bonds twice in the fiscal year. Thereby the government hopes to curb inflation. But Wall Street and the bearish financial markets have held-down the rates of the long-term bonds due to weak growth on the economic front. Working in tandem, the two-dimensionally opposite actions has led to a flat curve which will lead to the inversion of the curve if the Federal Government hikes the short-term rates twice more in this year as anticipated.

How Will It Impact The Stock Market?

The yield curve is yet to invert. In reality, the flatter curve is a prediction of the slowing down of economic growth. A recent study by BMO-Capital-Markets showed that when the rate difference fell to below 0.5% and the yield curve did not actually invert there was no major impact on the stock markets. It also showed that stocks bettered their performance during the flat phase rather than when the rates drew apart steeply, and the curve rose to indicate the same.

What Can You Do?

Check your risk levels in your portfolio and ensure your bond-to-stock ratio is a balanced risk. Don’t worry about the recession. Cut your losses with a better 50 to 50 spread over bonds and stocks. It is a red flag and caution is advised. Though hopefully, the recession will not be as bad or severe as the previous one. Wait it out and play safe.

For Online Course Enquiries
About Imarticus
Imarticus Learning is India’s leading professional education institute that offers training in Financial Services, Data Analytics & Technology. We’ve successfully transformed careers of over 35,000+ individuals globally through our Certification, Prodegree, and Post Graduate programs offered in association with leading and renowned global organisations in the Financial Services, Data Analytics & Technology domain.
Related course
  • Placement Assistance
    BBA in Finance
    Co-created with Jain University
    Course duration(Months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.3 out of 5 by 211 learners
    2x
    Upcoming Batches
    Date Location Schedule
    31st July ONLINE Online
    Date Location Schedule
  • Recent Graduates
    MBA in Investment Banking
    Co-created with Jain University
    Course duration(Months)
    24
    Upcoming batches
    1
    Organizations enrolled
    20
    4.5 out of 5 by467 learners
    2x industry demand
    Upcoming Batches
    Date Location Schedule
    31st July ONLINE Online
    Date Location Schedule
  • Recent Graduates
    MBA in Fintech
    Co-created with Jain University
    Course duration(Months)
    24
    Upcoming batches
    1
    Organizations enrolled
    20
    4.4 out of 5 by 349 learners
    2x industry demand
    Upcoming Batches
    Date Location Schedule
    31st July ONLINE Online
    Date Location Schedule
  • Placement Program
    Post Graduate Program in Business Management with NMIMS
    Co-created with NMIMS
    Course duration(Months)
    24
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 669 learners
    4x Industry Demand
    Upcoming Batches
    Date Location Schedule
    ONLINE Online
    Date Location Schedule
  • Post Graduate
    Post Graduate Program in Banking and Credit Underwriting
    Course duration(6)
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 1376 learners
    12 X industry demand
    Upcoming Batches
    Date Location Schedule
    Not Available MUMBAI Online
    Date Location Schedule
  • Post Graduate
    Post Graduate Program In Finance And Accounting
    Co-created with Grant Thornton
    Course duration(months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.9 out of 5 by 238 learners
    14 X industry demand
    Upcoming Batches
    Date Location Schedule
    None DELHI Online
    Date Location Schedule
  • Certification
    Professional Certification in FinTech
    Co-created with SP Jain School of Global Management
    Course duration(Months)
    3
    Upcoming batches
    1
    Organizations enrolled
    20
    4.6 out of 5 by 1421 learners
    6X industry demand
    Upcoming Batches
    Date Location Schedule
    ONLINE Online
    Date Location Schedule
  • PRODEGREE
    Credit Risk and Underwriting Prodegree
    Co-created with Moody’s Analytics
    Course duration(Months)
    3
    Upcoming batches
    2
    Organizations enrolled
    20
    4.6 out of 5 by 1139 learners
    4X industry demand
    Upcoming Batches
    Date Location Schedule
    13th February ONLINE Weekend
    Date Location Schedule
    29th May ONLINE Weekend
  • Certification
    Banking And Wealth Management Bootcamp
    Course duration(Months)
    2-3
    Upcoming batches
    1
    Organizations enrolled
    20
    4.6 out of 5 by 1429 learners
    3X industry demand
    Upcoming Batches
    Date Location Schedule
    30th January LUCKNOW Weekend
    Date Location Schedule
  • Post Graduation
    Post Graduate Program In Capital Markets
    Course duration(months)
    4
    Upcoming batches
    1
    Organizations enrolled
    20
    4.7 out of 5 by 807 learners
    3X industry demand
    Upcoming Batches
    Date Location Schedule
    Not Available ONLINE Online
    Date Location Schedule