Yield Curve Inversion Spells Trouble for Financial System

Yield Curve Inversion Spells Trouble for Financial System
Traders signal offers in the S&P options pit at the Cboe Global Markets Inc. exchange in Chicago on Feb. 6. Scott Olson/Getty Images
Dan Oliver
Updated:
The financial industry—banks and the shadow banking system—is based on borrowing short-term funds to lend against long-term assets and make a profit in the spreads.
The business model “works” because short-term rates are nearly always lower than long-term rates. The generally accepted explanation for this phenomenon is that the longer one lends one’s funds, the riskier it is, and so the more compensation the market demands.
Dan Oliver
Dan Oliver
Author
Dan Oliver is the principal at gold mining fund Myrmikan Capital.
Author’s Selected Articles
Related Topics