Identifying
yield curve trends
to refine your strategy
  • yc_01_yield_curve

    Learn how the
    yield curve can
    provide insight into
    the state of the
    economy
    and
    may help you make
    more informed
    decisions about
    your investment
    strategy.

  • The most commonly reported yield curve is based on U.S. Treasury debt securities.



    yc_02_treasury


    The U.S. Treasury issues debt securities
    that the public can invest in
    yc_02_shield


    These are backed by the U.S. government,
    so they have less credit risk than other investments
    yc_02_lower_returns


    However, lower credit risk also
    means lower returns
  • yc_03_yield_curve

    The yield curve illustrates the returns of U.S. Treasury debt.

    • These debt securities have fixed interest rate payments known as yield, when expressed as a percentage

    • Long-term bonds offer higher yields because inflation tends to decrease the value of future fixed payments

    • The yield curve shows the interest rates at all issued maturities — currently from four weeks to 30 years




    Inflation: the decrease in the purchasing value of money over time

    Maturities: time from when the debt is issued to when the investor receives the amount initially invested

  • The yield curve provides insight into how investors are feeling about the health of the overall economy.



    When investors feel confident about the economy

    When investors think a recession is in the future
    yc_04_arrow_up They’re more willing to take risks for higher returns yc_04_arrow_down They’re less willing to take risks and prefer safer investments
    yc_04_arrow_down Demand for U.S. Treasury securities decreases yc_04_arrow_up Demand for U.S. Treasury securities increases
    yc_04_arrow_up Yields increase as the supply of Treasury securities exceeds demand yc_04_arrow_down Stronger demand for Treasury securities drives yields down
  • The yield curve can take on different shapes, called slopes.


    yield curve showing a rising slope

    yield curve showing a steep slope
    yield curve showing an inverted slope
  • yield curve showing a rising slope

     

    Rising slope

    unchanged icon Economic growth
    Investors expect normal economic growth


    up icon Long-term bond yields
    Yields on long-term bonds are higher than shorter-term yields


  • yield curve showing a steep slope

     

    Steep slope

    up icon Economic growth
    Investors anticipate rapid economic growth


    down icon Long-term bond demand
    Demand for long-term bonds decreases


    up icon Long-term bond yields
    Yields on long-term bonds rise higher than shorter-term yields


  • yield curve showing an inverted slope

     

    Inverted slope

    down icon Economic growth
    Investors expect an economic slowdown


    up icon Long-term bond demand
    Demand for long-term bonds increases


    down icon Long-term bond yields
    Yields on long-term bonds fall below shorter-term yields


  • The yield curve is a valuable economic indicator that has historically predicted an oncoming recession.

    • For the past 50 years, the yield curve has inverted before the start of every recession
    • A recession has occurred an average of 12 months after the inversion of the yield curve
    Yield curve inversion Start of recession    Months in between    
    February 1973 November 1973 9
    September 1978 January 1980 16
    September 1980 July 1981 10
    December 1988 July 1990 19
    June 1998 March 2001 33
    June 2006 December 2007 18
  • Let the yield curve help as you work with a financial advisor to identify investment opportunities in various market conditions.




    MFM-2483AO

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The business cycle

Also learn about the business cycle with our guide.

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