Why An Inverted Yield Curve Won't Signal The Next Recession | Seeking Alpha

Why An Inverted Yield Curve Won't Signal The Next Recession | Seeking Alpha



Here is a very good article explaining the basics of the yield curve of bonds and how it often it has often predicted recessions and market downturns in the past.  The only reason for having such a long current bull market is that the Federal Reserve has held interest rates around zero for a record amount of time.  When interest on the 10-year bond gets back to around 4% or higher, we will probably have a stock market crash, but we may never get there as long as Fed rates stay near zero.



The author pointed out that Japan has had three recessions since 1990 without the yield curve being inverted below zero.  This could very well be a new paradigm for central banks to hold interest rates near zero for long periods of time.  The end result is that we could have a recession and stock market downturn without the usual inverted rate signal.  A flattening of the yield curve may be the only warning we will get as the author mentioned.  The short term and long term rates may never meet or cross each other.  The chart lines will just get closer.