The Importance of the Treasury Yield Curve

During the latter part of 2018 the Treasury yield curve started to invert as economists call it. The shorter term maturities, 1 month (1M), 3 month (3M), and 1 year (1Y) yields were all higher than the 2Y, 3Y, 4Y, 5Y, 7Y and 10Y Treasury yields. Only the 20Y and 30Y maturities remain higher. As you can see, with the two prior years, the yields of the various maturities were normal in that the short term Treasury yields were lower then the longer term Treasury yields, which is the way they should be in a good and/or normal market.

So what is the significance and importance of the partial inversion of the Treasury yield curve? 1. It means the Federal Government is having to pay more interest to investors who buy the Treasuries that fund the $1 trillion+ annual deficits the U.S. is now consistently having to borrow to fund our government. 2. Historically, in every single occasion this has occurred, the U.S. was soon in a recession. Today now only is the U.S. economy slowing, so is most of the rest of the world, according to numerous indicators and high profile sources.

It is important to understand, that the debts of both the private and public sector are much higher today indicating that the recesssion will most likely be deeper or longer than the great recession of 2008, potentially even another great Depression.

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