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Subject An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

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Original Message For the first time in a while, stock market investors are being spooked this week by what’s happening in the bond market. And the reason has something to do with an occurrence that is not exactly in the everyday investor’s lexicon: an inverted yield curve.

Put simply, an inverted yield curve happens when bond yields at the short end of the bond spectrum rise above those at the long end. Usually, the bond market focuses on the difference between the yields on U.S. Treasury two-year notes and those for 10-year notes. When the yield curve inverts, it means the two-year notes pay bondholders more in interest than 10-year notes do, something that’s both rare and counterintuitive.

For economists and investors, it’s a loud warning about the economy’s outlook. One portfolio manager called the inverted yield curve a “harbinger of doom.” It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

[link to fortune.com]

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