Last Wednesday, the stock market tanked after the yield curve for the bond market became inverted, meaning that interest rates on short-term bonds grew higher than those paid on long-term bonds. The video below takes a look at this complicated concept and explains why the “inverted yield curve” can be a warning sign of a recession.
Questions:
- What is the difference between short-term and long-term bonds?
- Why do investors consider the inverted yield curve to be a potential sign of a recession?