from the St Louis Fed
During this session, St. Louis Fed economist Chris Waller talked about the yield curve, a plot of a Treasury bond’s maturity against its rate of return at a given point in time. Waller, executive vice president and director of research, said that the yield curve is normally upward-sloping, with 10-year Treasuries paying higher interest rates than two-year or three-month bonds.
But after the Federal Open Market Committee started raising its policy rate in December 2015, rates for short-term debt increased and the 10-year Treasury “didn’t budge,” Waller said. That flattened the yield curve and pushed it toward inversion, which is when short-term debt has higher interest rates than long-term debt. Inversion of the yield curve often comes before recessions.
