Recently, investors and economists have focused increased attention on bond market yield curves, which have proven to be a compelling predictor of an upcoming economic recession.

The yield curve is the measure of the difference between short-term and long-term interest rates on government bonds.  In a healthy economy, interest rates on long-term (typically, ten-year) bonds are generally higher than rates on short-term (often, two-year) bonds.  This rate increase from short-term to long-term bonds creates a positively sloping yield curve (see Figure 1) which reflects investors’ expectations that economic growth will, among other things, ultimately inflate prices.

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