Markets confront a yield sign ⚠️

A key part of the U.S. Treasury yield curve has inverted 🙃

Yield. (Source: Getty)

There’s lots of talk about the recent “yield curve inversion,” with media outlets playing up that this bond market phenomenon may be signaling a recession. One news organization even highlighted it as an “always-accurate indicator.”¹

Admittedly, yield curve inversions have a pretty good track record of being followed by recessions, and recessions usually come with significant market sell-offs.

But experts also caution against concluding that inverted yield curves are bulletproof leading indicators. One widely circulated study from the Federal Reserve in March concluded that the yield curve’s signal is “probably spurious.”

It would take a couple thousand words to thoroughly cover all of the nuances of the yield curve and the causes and effects of yield curve inversions. But we’re not going to do that here.

For this piece, we’ll start with a quick crash course on what’s going on. Then we’ll review what experts have to say about it, including what it may mean for the stock market. And then we’ll wrap up with some big-picture thoughts.