Business, Legal & Accounting Glossary
A negative yield curve has short-term rates, or yields, higher than the most long-term yields. A negative yield curve is an abnormal condition. Bank margins get squeezed when a negative yield curve emerges. The negative yield curve occurs because the market sets long-term yields, but the Fed has significant control over short-term yields. The usual explanation for how the negative yield curve can persist when the Fed drives up short-term yields is that investors expect long-term yields to become even lower in the future, so they lock up money at the best rate available, negative yield curve or not. Bond market participants expect falling long-term yields despite a negative yield curve when they anticipate an economic slowdown. The bond market is usually right. Since the 1960s, almost every negative yield curve instance, of which there have been over a dozen so far, has been followed by a recession. Some analysts speculate the significance of the negative yield curve as a recession predictor may be diminishing because structural factors such as globalization are changing the market forces driving long-term yields.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Negative Yield Curve are sourced/syndicated and enhanced from:
This glossary post was last updated: 7th February, 2020