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Features and Influences of Inverted US Treasury Bond Yield Curve (No. 242, 2019)


By Chen Ning & Zhu Hongming, Research Team on “Policies and Measures for Preventing Financial Risks”, Research Institute of Finance, DRC

Research Report, No. 242, 2019 (Total 5742) 2019-12-27

Abstract: The US treasury yield inversion means that the long-term yield dipped below the short-term one, which is widely viewed as an indicator for a looming recession of US economy. Looking back into the history, it could be found that the possibility of recession will improve along with the increase of time and range of inversion as well as the types of bonds involved. The previous economic landscape during inversion in the United States is similar to the current one with low unemployment, growing fiscal deficits and high stock indexes. However, there are also differences such as fewer types of bonds, small range of inversion, low inflation, smooth performance in real estate investment market and relatively strong confidence of consumers. Some special influential factors are also exerting impacts, such as the adjustment of the Federal Reserve’s monetary policy, continuous impacts imposed by the global trade war and sluggish European and global economic growth. Overall, the possibility of recession in the United States remains moderate in the short term, but we need to keep a close eye on potential risks that might be induced by inverted US treasury bond yield curve amid mounting global uncertainties.

Key words: treasury bond yield, financial market, economic recession