Recently, the yield curve inverted—albeit only for a couple of days. Pundits are now debating whether this is portending an imminent recession.
But what is the yield curve? What does it mean for the yield curve to be inverted? Do yield curve inversions matter? And is a recession imminent?
What is a Yield Curve Inversion?
Before looking at yield curve inversions it is worth highlighting what the yield curve itself is. The yield curve is just a line connecting the interest rates (or yields) on bonds with different maturities. It illustrates the amount of compensation investors demand to hold a bond for a given maturity.
