The yield curve is almost inverted. Indeed, parts of it are inverted already. And it’s flattened remarkably swiftly. What does this mean and does any of this matter?
It commands so much attention for two key reasons. First, yield curve inversions tend to be a great warning that a recession is coming in a matter of months. Second, an inverted curve tends to make life very difficult for banks, who traditionally make their money by borrowing short-term (through deposits) at low rates, lending long-term at higher rates, and pocketing the difference. At times of inversion, life gets much harder for banks.
Jeff Powell and Jeremy Witbeck, provide their thoughts on whether any of this matters , what it means and how it has in the past predicted recession, and what it might be signaling now.