Market Update: The Inverted Yield Curve and What it Means

Article by David S. Coult, CFP, CLU, ChFC, CPFA, President, Milestone Financial Associates, LLC

When we walk into a bank and want to invest our money safely by buying a CD (thereby lending the bank money for a fixed time period), we expect a higher interest rate for a 10 year loan than a 2 year because we’re giving them our money for a longer time period. In the same way, we as borrowers pay a higher interest rate for a 30-year mortgage than a 15-year. It’s normally the same way for government bonds (loans to the US government). Today, for the first time since 2007, that expectation is not the reality. Investors now get a lower rate of interest on 10-year government bonds than 2-year bonds. That has traditionally been a bad sign for the economy – an indicator of a possible recession coming in the next year or two.

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