Rethinking the yield curve inversion

Rethinking the yield curve inversion
Bloomberg | Jonathan Wright, professor of economics at Johns Hopkins University

Financial markets often fixate on the shape of the yield curve for government debt. Most of the time, this curve is ‘normal’ – that is to say, continually rising. This is also rational. The market prices longer-dated bonds more expensively than short-term notes because investors demand greater compensation for waiting longer for the bonds to mature. The longer an investor must wait for this to happen, the greater the potential threats from inflation, interest rate increases or default.

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