Research shows that the inverted yield curve in the American bond market could be indicating a future US recession.
John Williams, President of the New York Federal Reserve Bank, shares his view that the yield curve can be seen as a better indicator of recession over professional forecasters.
The historical pattern of the yield curve runs closely in line with the financial state of the economy.
However, many argue that the closing gap simply mirrors a slowdown of economic growth and it is not necessarily an indicator of recession in itself.
What is a bond yield?
A bond yield is the rate in which interest is paid to bonds investors on an annual basis. The expected result is that a short-term US government bond pays less over the short-term and a long-term US government bond pays more over the long-term for a better return.
The yield is expected to slope upwards as the redemption rate is marked further in the future.