Bond yield curve
The bond yield curve has proven to be a useful sign of looming stock market correction and contracting credit supply which contributes to recessionary pressures and all the negatives a recession brings along with it.
The yield curve displays the rate of return on US treasury bond at the 3 month, 2-year, 5-year, 7-year, 10-year, 20-year and 30-year mark.
Typically, a normal curve is such that investors receive the highest rate of return on the multi-year bonds and smaller rate of return on bonds less than one year. So the low end of the curve is on the left (3-month) and gets higher towards the right (30-year).
When the rate of return on 3-month bond is higher than the rate of return on the 10, 20 & 30-year bonds that is called an inverted yield curve. Visually, it shows as the left end of the curve being higher than the right end.
Inverted yield curve has occurred recently on two occasions. In August 2000 and April 2007. At both inversion points, the markets peaked and within 6 months the economies had stalled and the stock markets dropped by significant amounts. In both cases, the markets lost significant amounts of their market values: -29% (2000) and -50% (2007).
The yield curve is a harbinger. It was not the cause of the downturn but an effect due to tightening credit and loss of faith in the economic indicators.
The previous two recessions impacted global economies and millions of families worldwide.
The current debt loads of families, businesses and governments will ensure that the upcoming downturn will impact more people and impact them even harder than the previous two corrections combined.
Recognize the signs this time around so you can take measures to protect yourself and are not caught by surprise.
Monitor the yield curve here at Stockcharts.com:
Dynamic yield curve chart
Place your mouse cursor on the red line and slide left-right to view the bond yield curve for each point in time.
Book of Truth prophecy:
- April 24th, 2011
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