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Why Does A Yield Curve Inversion Suggest A Recession?

Published Thu, 26 Sep 2019 05:25:50 -0400 on Seeking Alpha

By Christian Hubbs
Last month (August 14, 2019), the spread between the 10-year treasury yield and the 2-year treasury yield inverted. If you believe the headlines, this traditional recession indicator caused the markets to sell off, with the Dow Jones closing with an 800 point loss (-3.1%) and the S&P 500 also losing 85 points (-2.9%).
So, what is the yield curve, and why does everyone worry that it signals a recession?
The Bond Market
To get into yields, we need to understand a bit about bonds. Bonds are essentially loans that governments and corporations make to investors. If you buy a 10-year treasury bond, this means that you are loaning the US government money for 10 years. As with any loan, when the maturity date is reached (in this example, 10 years from today), you will have been paid off in full, plus some interest (or yield, the amount of cash you get from owning the bond).
10-year treasury bonds are the most commonly reported on in the media, although the treasury also offers shorter-term bonds ranging from 1 month to 30 years. Investors anticipate receiving a higher interest rate (yield) for longer-dated bonds because of time preferences and opportunity costs associated with lending money. In other words, having $1,000 today is better than having $1,000 tomorrow. The longer you have to wait, the more you expect to be compensated for waiting, and thus, the higher the interest rate you expect to receive on the loan.
The Yield Curve
Given that... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CORNERSTONE TOTAL RETURN FUND 11.38   0.0 0.00 2.48 22.00
ZWEIG FUND 10.98   0.0 0.00 1.44 13.14
LIBERTY ALL STAR EQUITY FUND 6.38   0.0 0.00 0.65 10.30
PROSHARES ULTRAPRO SHORT S&P 500 25.26   0.0 0.00 0.00 2.32
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 272.32   0.0 0.00 5.67 2.10
PROSHARES ULTRASHORT S&P 500 28.97   0.0 0.00 0.00 1.97
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82
POWERSHARES QQQ TRUST SERIES 1 193.23   0.0 0.00 1.49 0.78

CORNERSTONE TOTAL RETURN FUND - CRF
CORNERSTONE TOTAL RETURN FUND - CRF  


Older articles featuring Cornerstone Total Return Fund (CRF):
Stocks Yielding More Than Bonds Again
A Steeper Yield Curve Should Benefit Financial Stocks
Dividend Yields Around The World
Dividends By The Numbers In October 2019
Yield Curve Disinversion
Bond Market History: When The Yield Curve Un-Inverts
This May Not Be Your Father's Inverted Yield Curve
Pay Attention To The Message The Yield Curve Is Sending
Negative-Yielding Debt: Monetary Contagion Spreads
The Dollar, High-Yield Bond Market And S&P 500 Revenue Growth

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