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1 1 (August 21, 2019)

handle is hein.crs/govbave0001 and id is 1 raw text is: * Congressional _____ £ Research Service nforming the Iegislative debate since 1914 The Yield Curve and Predicting Recessions Updated August 21, 2019 Economists and financial markets closely monitor interest rates in hopes of gleaning information about the path of the economy. One measure of particular interest is the yield curve. Recently, the yield curve associated with U.S. Treasuries has been inverted. This Insight discusses possible explanations for the inversion, including whether the inversion is signaling that the economy will enter a recession. What Is the Yield Curve? A yield curve plots the interest rates on various short-, medium-, and long-term bonds by the same issuer. Normally, short-term interest rates are lower than longer-term interest rates for a variety of reasons, producing an upward-sloping yield curve. For example, Figure 1 shows the Treasury bond yield curve on February 5, 2015. As the maturity date lengthens, the yield is higher at each point on the curve. What Is a Yield Curve Inversion? Occasionally, short-term interest rates are higher than longer-term rates, creating an inverted yield curve. Since March, the yield curve associated with U.S. Treasuries has shown signs of inversion. On August 19, 2019, the yields on 3-, 5-, and 10-year Treasuries were below the yields on Treasuries with a maturity of a year or less (see Figure 1). The yield on 20-year Treasuries were also lower than the yields on 3- or 6- month Treasuries. The yields on 30-year Treasuries was higher than the yield on 3-month Treasuries, but the spread between the two has been narrowing, suggesting that the portions of the yield that have not inverted have flattened. As the figure illustrates, the yield curve inversion has occurred because short-term rates have risen and long-term rates have declined. Congressional Research Service https://crsreports.congress.gov IN11098 CRS INSIGHT Prepared for Members and Committees of Congress

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