Washington Post

What is an 'inverted yield curve,' and why does it matter?

Foto: A TV screen shows the numbers after the closing bell at the New York Stock Exchange (NYSE) on August 5, 2019 at Wall Street in New York City. - Wall Street stocks plunged after a forceful response by Beijing to the latest US tariff announcement escalated an ongoing trade war, exacerbating global growth worries. The Dow Jones Industrial Average sank 2.9 percent or around 770 points to 25, 717.74 in the worst session of the year. (Photo by Johannes EISELE / AFP)

Stock markets tanked Wednesday after the bond market sounded a loud warning that the U.S. economy might be headed toward a recession.

Investors are spooked by a scenario known as the ”inverted yield curve,” which occurs when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds. What it means is that people are so worried about the near-term future that they are piling into safer long-term investments...

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