Inverted Yield Curves

The concept of the yield curve plays a crucial role in the financial markets, serving as a barometer of investor sentiment and economic expectations.

However, when this relationship reverses, and long-term bonds yield less than their short-term counterparts, the result is what is known as an inverted yield curve.

Historically, an inverted yield curve has been one of the most reliable indicators of an impending economic recession, as it reflects growing pessimism about future economic growth and inflation.

In-Depth Analysis of Domestic Spreads

The convexity of the yield curve can be assessed by examining the spreads between government bonds with long, medium, and short maturities.

A negative spread between 10-year and 2-year government bonds is a strong indicator of a fully inverted yield curve.

Partially or mildly inverted yield curves are signaled by a negative spread between 5-year and 2-year bonds, or between 2-year and 1-year bonds.