francefr
Credit investing glossary

Inverted yield curve

A yield curve represents the relationship between bond yields – interest rates – of bonds with the same credit quality across different maturities, at a specific point in time. In short, it indicates what it costs to borrow money over time. It is a graphical representation of the term structure of interest rates, and reflects market expectations of future economic conditions and changes in interest rates.

The yield curve historically has been upward sloped under conditions of normal or positive economic growth. That is, long-term yields typically are higher than short-term yields, owing to the so-called maturity risk premium: lenders demand higher returns on long-dated debt to compensate for the uncertainty of holding debt instruments for longer periods of time. 

At certain points in the economic cycle, yield curves flatten and can even slope downwards. A downward- or negatively sloped yield curve is referred to as an inverted yield curve.

Consistently at the forefront of credit management
Consistently at the forefront of credit management
Credit investing

What drives this slope inversion and why is it such a closely watched phenomenon? Market watchers tend to fear yield curve inversion, as it historically has been a leading indicator of economic recession. When economic growth deteriorates and investors believe a contraction is looking, they would be wary holding debt on the shorter end of the maturity spectrum. This is based on the view that companies and government agencies may have more difficulty servicing debt in the next two to five years, say. As investors shun short-term debt in favor of longer-term debt, short-term yields rise and long-term yields decline. The result is a downward-sloping yield curve.

The US Treasury yield curve is an example of a yield curve that is used extensively in practice. It plots the yields on instruments issued by the US government, ranging from one-month bills to 30-year debt. A much-watched portion of this yield curve is the two-year-to-ten-year curve. Changes in the slope of this curve is considered a leading indicator of turns in the US economic cycle, which has repercussions for global markets.

Central bank watcher: Liquidity preference
Central bank watcher: Liquidity preference
The key central banks have a preference for injecting liquidity rather than further interest rate cuts.
24-01-2020 | Vision
Podcast: La contribution aux ODD est d’une importance cruciale
Podcast: La contribution aux ODD est d’une importance cruciale
Si les investisseurs ne tiennent pas compte des enjeux liés aux Objectifs de Développement Durable (ODD), la croissance future sera bien plus faible et bien plus erratique que par le passé.
06-01-2020 | Podcast
Recalled to Life: Finding the right bonds for recovery
Recalled to Life: Finding the right bonds for recovery
Global growth has slowed for two years, at some point trends will bottom out.
19-12-2019 | Prévisions annuelles
Logo

Information importante

L’information publiée dans les pages de ce site internet est plus particulièrement destinée aux investisseurs professionnels.

Certains fonds mentionnés dans le site peuvent ne pas être autorisés à la commercialisation en France par l’Autorité des Marchés Financiers. Les informations ou opinions exprimées dans les pages de ce site internet ne représentent pas une sollicitation, une offre ou une recommandation à l’achat ou à la vente de titres ou produits financiers. Elles n’ont pas pour objectif d’inciter à des transactions ou de fournir des conseils ou service en investissement. Avant tout investissement dans un produit Robeco, il est nécessaire d’avoir lu au préalable les documents légaux tels que le document d’information clé pour l’investisseur (DICI), le prospectus complet, les rapports annuels et semi-annuels, qui sont disponibles sur ce site internet ou qui peuvent être obtenus gratuitement, sur simple demande auprès de Robeco France.

Nous vous remercions de confirmer que vous êtes un investisseur professionnel et que vous avez lu, compris et accepté les conditions d’utilisation de ce site internet.

Je n’accepte pas