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Hamptons.com
October 9, 2019

The Inverted Yield Curve – What Does It Mean to Me?

Rocco A. Carrieroby Rocco A. Carriero
in Real Estate
Home Real Estate

Investors who follow the markets have seen headlines in recent weeks about something called the “inverted yield curve.” For those less familiar with the phenomenon, an inverted yield curve is essentially a point on a chart where short-term investments in U.S. Treasury bonds pay more than long-term ones. And when it occurs, it’s generally regarded as a warning sign for the economy and markets.

What does this mean, exactly? If you are asking yourself this question, you’re not alone. So, let’s break down the inverted yield curve and the significance it could carry for you.

Understanding how bonds work

Before delving into the specifics of an inverted yield curve, it helps to understand how the bond market works. In this example of a yield curve, we’re focused on government-issued bonds referred to as U.S. Treasury securities.

Investors who purchase Treasury bonds are lending money to the government. In return, they earn interest, or a yield, on that security. In a typical economic environment, investors earn lower yields on shorter-term bonds and higher yields on longer-term bonds. This reflects an expectation that the longer the lending period, the higher the risk.

The normal shape of the yield curve

The proverbial “yield curve” is drawn by plotting out current yields on Treasury securities of various
maturities. The shortest maturities are on the left-hand side (one-month, two-month, three-month and six-
month). The scale continues plotting yields for one-year, two-year, five-year, seven-year, 10-year and 20-
year yields, ending on the far-right side of the scale with 30-year bond yields.

If we assume that investors typically require higher yields to invest in bonds with longer maturities, then
under normal circumstances the yield curve is upward sloping. For example, at the end of October 2018,
yields on Treasury securities ranged from 2.30% for one-month bonds to 3.39% for 30-year bonds, with
the curve rising steadily upward at each maturity level.

The slope changes

In recent months, we’ve seen a change in the slope of the yield curve. It has generally flattened out, with little differentiation in rates between shorter-term and longer-term Treasury securities.

Most notable to the markets was an inversion between the yields on two benchmark securities, the two-year Treasury and the 10-year Treasury. On August 27th, yields on 10-year Treasuries fell to 1.49%, lower than the 1.53% yield on two-year Treasuries. Even the one-month Treasury security paid a higher yield (2.07%) than the 30-year Treasury bond (1.97%).*

Raising investor concerns

Yields on Treasury bonds are driven primarily by demand for those bonds. When yields on longer-term securities drop low enough to result in an inverted yield curve, it indicates that many investors are seeking to buy those securities.

The conventional wisdom is that investors who choose to accept low yields for longer-term bonds anticipate that a recession may be approaching. If a recession occurs, the Federal Reserve is likely to cut the short-term interest rates it controls. Often when that occurs, yields on other types of bonds decline as well. So those investing in long-term bonds may anticipate Federal Reserve rate cuts and want to lock in higher rates on longer-term bonds before they drop.

Is it a reliable recession indicator?

There is plenty of speculation that the inverted yield curve could signal a coming recession. While a recession has often followed a yield curve inversion, such an occurrence is not set in stone. What’s more, it is not a reliable indicator of the exact timing of a recession. In fact, no such indicator related to timing of the economic cycle appears to exist.

Yet it is worthwhile to note that we are in an unusual environment for fixed income securities given the inverted or flattened shape of the yield curve. There appears to be a fair amount of uncertainty about the near-term outlook for the economy and markets. It may be an opportune time to review your current investment strategy and consider whether any changes are appropriate.

*Source: U.S. Department of the Treasury, “Daily Treasury Yield Curve Rates,” (www.treasury.gov)

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LOCAL EVENTS

Events

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A Legendary Day at Sebonack!

September 9 @ 08:30 AM - September 9 @ 05:00 PM
Sebonack Golf Club - 405 Sebonac Rd, Southampton, NY 11968
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Youth Advisory Committee (YAC)

September 9 @ 06:30 PM - September 9 @ 08:00 PM
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THFM 2025 Festival Concert #2

September 11 @ 07:00 PM - September 11 @ 09:00 PM
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Tour of the Beebe Windmill with Southampton Town Historian Julie Greene

September 13 @ 11:00 AM - September 13 @ 12:00 PM
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INTERVIEW: Director Ric Burns On “Oliver Sacks: His Own Life”

INTERVIEW: Director Ric Burns On "Oliver Sacks: His Own Life"

  • I recently toured the new Rolex Boutique by London Jewelers in East Hampton, and it’s one of the most beautiful retail spaces I’ve ever stepped into. Located on Newtown Lane, the boutique is set inside a restored historic home that dates back to 1897, originally designed as a summer cottage.⁠
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From the outside, it has that classic East Hampton charm, cedar shingles, white trim, and lush landscaping. But once you step inside, it’s all about quiet sophistication.⁠
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The space is warm and welcoming, with walnut wood paneling, soft neutral tones, and beautiful textures throughout. There’s a fluted marble wall in a rich green Verdi Alpi stone that immediately catches your eye. It’s one of those details that’s understated but unmistakably Rolex.⁠
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Read the full article at Hamptons.com (Link in Bio)⁠
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#rolex #easthampton #hamptons #luxury #watch⁠
  • 🎾 Men’s US Open Final Viewing Party⁠
📅 Sun, Sept 7 • 2–5PM⁠
📍 Canoe Place Inn, Hampton Bays⁠
Watch the riveting Men’s US Open Final with drinks, grilled classics & fellow tennis fanatics in the lush garden.⁠
⁠
🦞 Montauk Seafood Festival⁠
📅 Sat, Sept 6 – Sun, Sept 7 • 12–5PM⁠
📍 On the Green, Montauk⁠
The ultimate seafood event in the Hamptons! Lobster rolls, fish tacos, chowder, oysters & more 🐚🍤⁠
⁠
🩰 Master Class w/ Kat Wildish⁠
📅 Sat, Sept 6⁠
📍 Hamptons Ballet Theatre School, Bridgehampton⁠
Open-level adult ballet class with world-renowned former NYCB & ABT dancer Kat Wildish. One day only!⁠
⁠
🎶 Hamptons Festival of Music⁠
📅 Sat, Sept 6 • 7PM⁠
📍 St. Luke’s Episcopal Church, East Hampton⁠
THFM’s MainStage Festival Orchestra featuring The New American Sinfonietta 🎻✨⁠
⁠
🌾 Outstanding in the Field (Sagaponack)⁠
📅 Sun, Sept 7 • 3PM⁠
Dine where the food is grown! Guest chef Jason Weiner returns for his 19th year 🍽️🌱⁠
⁠
😂 Samantha Bee Live⁠
📅 Sat, Sept 6 • 8PM⁠
📍 WHBPAC, Westhampton Beach⁠
Award-winning comedian Samantha Bee brings her one-woman show to the Hamptons!⁠
⁠
🍴 Stirring The Pot: Andrew Carmellini⁠
📅 Sun, Sept 7 • 11AM⁠
📍 Guild Hall, East Hampton⁠
NYT’s Florence Fabricant interviews star chef Andrew Carmellini about his restaurant empire.⁠
⁠
🌕 Full Harvest Moon Hike⁠
📅 Sun, Sept 7 • 7:30PM⁠
📍 Meet at SOFO Museum, Bridgehampton/Sag Harbor Tpke⁠
Walk under the moonlight with Friends of the Long Pond Greenbelt 🌙✨⁠
⁠
🎨 Style Beading Workshop⁠
📅 Fri, Sept 5 • 1PM⁠
📍 Nathaniel Rogers House, Bridgehampton⁠
Join Indigenous artist Savannah LeCornu to learn traditional beading techniques.⁠
⁠
⛳ A Legendary Day at Sebonack!⁠
📅 Tues, Sept 9 • 8:30AM–5PM⁠
📍 Sebonack Golf Club, Southampton⁠
An unforgettable day of golf supporting Westhampton Beach PAC 🌟⁠
⁠
👉 Which event are you going to this weekend?⁠
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Check out more events at Hamptons.com (Link in Bio)⁠
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#community #entertainment #hamptons #usopen #golf #comedy #seafood #montauk
  • Hamptons fashion week was hosted at Zoe Hospitality Private Membership Club, featuring designer Johnny Was, Porshia Swim, Vernice Holmes, Atelier H, Cesar Galindo, SixyByVenice and Ines Hernandez Hats.

#hamptonsfashionweek
  • As the summer comes to an end, it’s time to find out what everyone was reading this summer.
  • Brook Sheilds celebrates the launch of her hair care brand for women over 40 by making stops at some of her favorite stops in the Hamptons. The stops include The Hub, Clare V and Jones Road. Brooke personally handed out the Shine-Enhancing Detangler to the first 25 people at each stop.

#commence #brookeshields
  • Although Mavericks has only been open for two years, it has quickly become a Montauk staple beloved by locals and summer vacationers. Under the helm of Executive Chef and Montauk local Jeremy Blutstein, Mavericks stands out in the Hamptons restaurant scene with large-format dishes, sunset views, and an elegant ambiance marked by an exclusive contemporary art collection.⁠
⁠
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Hamptons.com caught up with Jeremy to talk about his favorite dish, Mavericks’ menu, and his go-to lunch spot.⁠
⁠
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When did you first realize you wanted to be a chef?⁠
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I wouldn’t say there was a defining moment when I knew I wanted to be a chef. I do know that the first time I worked in a restaurant, I was hooked on the whole experience. I was a teenager at The Farmhouse Restaurant in East Hampton (which is now Moby’s). The structure within the chaos was intoxicating, and we had to make everything happen because there was no other option. Thriving in those high-stress environments was like a drug.⁠
⁠
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What’s your favorite dish to cook and why?⁠
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I don’t come from a cooking family, so I don’t have any go-to Grandma’s recipes or food traditions. I’ve always been drawn to what’s available at the moment. I grew up with my very dear friend Alex Balsam (from Balsam Farms in Amagansett), who has been obsessed with farming as far back as our 35-year friendship began. He taught me where and who our food comes from. I’m also a big believer in the old “keep it simple stupid” mantra. Honest ingredients seasoned well and cooked with honest intentions. ⁠
⁠
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Read the full interview at Hamptons.com (Link in Bio)⁠
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#mavericks #montauk #chef #dining
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