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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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Evelyn Alexander Wildlife Rescue Center Mother’s Day Plant Sale

May 9 @ 10:00 AM - May 10 @ 05:00 PM
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Per Te (For You) A concert of dedications – Music by Roberto Scarcella Perino played by pianist Baron Fenwick

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INTERVIEW: Director Ric Burns On “Oliver Sacks: His Own Life”

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

  • 7 Ashwood Court, Southampton, NY 11968⁠
Saunders Exclusive: $6,200,000⁠
@vinceinthehamptons⁠
@hamptonsrealestate⁠
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This magnificent new construction offers a blend of modern luxury and timeless sophistication. Spanning 7,546 +/- sq. ft. on a pristine 0.92-acre lot, this two-story traditional-style residence boasts 7 bedrooms, 7 full baths, and 1 half bath.⁠
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Inside, find an open kitchen adorned with marble countertops and high-end stainless steel appliances, perfect for the culinary enthusiast. The home features a spacious entry foyer, a living room, dining room, family room, den/office, and a study. Enjoy the comfort of two primary bedrooms, each with its own freestanding soaking tub, located on the first and second floors, respectively.⁠
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  • Steeped in tradition, history, and familiarity, a refurbished Sagaponack General Store has reopened its doors. Though still on the same footprint, the renovated establishment feels larger and more spacious, with an open layout and abundant natural light that adds warmth and charm. It now shares space with the newly restored historic Post Office at 542 Sagg Main Street in Sagaponack, located between Sagaponack Road and Hedges Lane, just south of the Sagaponack Common School.⁠
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The original 1878 building was meticulously moved 15 feet back from Sagg Main Street and now features a welcoming new porch. The Post Office, located there as well, has its own handicapped-accessible entrance. While construction is complete, the Post Office has not yet reopened to the public. ⁠
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Read the full article at Hamptons.com (Link in Bio)⁠
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#sagaponackgeneralstore #local #community #sagaponack #⁠
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  • Check out the top Hamptons events this weekend!⁠
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🎭 Coppélia at Guild Hall⁠
📅 May 2–4⁠
🕖 Fri & Sat @ 7PM | Sun @ 12PM & 5PM⁠
📍 Guild Hall, East Hampton⁠
✨ Hampton Ballet Theatre School’s spring ballet!⁠
🎟️ Link in bio⁠
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🎙️ Elvis Meets Sinatra @ WHBPAC⁠
📅 Sat, May 3 | 🕗 8PM⁠
📍 Westhampton Beach PAC⁠
🎶 Top tribute acts for Elvis & Sinatra⁠
🎟️ Link in bio⁠
⁠
📚 Gingy’s Diaries @ Southampton Arts Center⁠
📅 May 2–4⁠
🕑 2PM & 7PM⁠
🎭 A witty, moving new show by Ilene Beckerman⁠
🎟️ Link in bio⁠
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🌸 Spring Market @ Share the Harvest Farm⁠
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📍 St. Luke’s Church, East Hampton⁠
🎶 Live music, fresh food, flowers & gifts⁠
🎟️ Link in bio⁠
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🏇 Kentucky Derby Party⁠
📅 Sat, May 3 | 🕓 4PM–7PM⁠
📍 Fauna, Westhampton Beach⁠
🍹 Cocktails, hors d’oeuvres & hat contest!⁠
🎟️ Link in bio⁠
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🌼 Mother’s Day Flower Arranging Class⁠
📅 Sun, May 4 | 🕒 3PM–5PM⁠
📍 The Hampton Maid, Hampton Bays⁠
💐 Create a bouquet with Andrews Family Farm⁠
🎟️ Link in bio⁠
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🧘‍♀️ The Rise Wellness Retreat⁠
📅 Sun, May 4 | 🕘 9AM or 3PM⁠
📍 East Hampton Indoor Tennis Club⁠
💪 Yoga, Padel, painting & shopping powered by Lululemon⁠
🎟️ Link in bio⁠
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🏃 May Day 5K – East Hampton⁠
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📍 101 Ocean Ave, East Hampton⁠
💖 Run for Family Service League⁠
🎟️ Link in bio⁠
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🪑 Almond Zigmund: Wading Room Exhibition⁠
📅 Opens Sun, May 4 | 🕛 12PM–5PM⁠
📍 Guild Hall, East Hampton⁠
🎨 A fusion of art, furniture & collaboration⁠
📸 Photo Credit: Francine  Fleischer
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🍽️ Long Island Restaurant Week⁠
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🍷 Enjoy 3-course prix fixe meals across LI⁠
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⛳ CMEE Spring Golf Outing @ The Bridge⁠
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Discover an unparalleled offering in the heart of historic Sag Harbor Village. Situated on an idyllic 0.63-acre corner lot, this meticulously restored Victorian delivers the ultimate Hamptons lifestyle: a luxuriously appointed main residence, a lofted studio, and resort-like grounds with a heated gunite pool. Just moments from Sag Harbor
  • To launch the celebrations for its 50th edition, the Hampton Classic Horse Show has unveiled its 2025 poster, “Beneath the Painted Sky,” featuring artwork by Michael “Mickey” Paraskevas of Southampton, NY. Paraskevas has previously designed the Hampton Classic poster four times (1987, 1992, 1998 and 2008).⁠
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Celebrating 50 years of world-class equestrian competition, the Hampton Classic returns to Bridgehampton, NY, August 24-31, featuring FEI CSI5* and CSI2* show jumping and USEF Premier hunter competitions with more than $1 million in prize money.⁠
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📸: Poster Courtesy of the Hamptons Classic⁠
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  • The countdown has begun! ⁠
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Only a couple of weeks till Memorial Day Weekend! ⁠
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Check out the top Hamptons events this weekend!⁠
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🧘‍♀️ Hot Yoga Flow – Southampton⁠
📅 Friday, April 25th | 🕤 9:30–10:30 AM⁠
📍 Wave Social Wellness, Southampton⁠
🔥 Move, stretch, and detox in a 95°–105° room. Mindfulness meets movement.⁠
⁠
🏃‍♀️ 13th Annual Katy’s Courage 5K⁠
📅 Saturday, April 26th | 🕖 7–10 AM⁠
📍 21 W Water St, Sag Harbor Village⁠
💖 Supporting scholarships & Katy’s Kids @ CMEE. Run with heart.⁠
📸: Courtesy of Katy’s Courage⁠
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🛶 Kayak Big Fresh Pond⁠
📅 Saturday, April 26th | 🕙 10 AM–12 PM⁠
📍 Elliston Park, Southampton⁠
🚣‍♂️ Bring your kayak & life jacket! Nature, peace, and paddling.⁠
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🎨 Spring Craftmarket – Ashawagh Hall⁠
📅 Saturday, April 26th | 🕙 10 AM–4 PM⁠
📍 780 Springs Fireplace Rd, East Hampton⁠
🛍 Handmade art, crafts, food & more. One day only!⁠
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🎶 BCM Spring: Spring’s Clarity⁠
📅 Saturday, April 26th | 🕔 5–6:30 PM⁠
📍 Bridgehampton Presbyterian Church⁠
🎵 Mendelssohn, William Grant Still, & more—live chamber music bliss.⁠
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😂 Ha Ha Hamptons Comedy Tour⁠
📅 Saturday, April 26th | 🕗 8–10 PM⁠
📍 Bay Street Theater, Sag Harbor⁠
🎤 4 comics, 1 hilarious night. Don’t miss the laughs.⁠
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🍽 Long Island Restaurant Week⁠
📅 April 27th – May 4th⁠
📍 Various Locations⁠
🥂 3-course meals. One week. Your favorite Long Island spots.⁠
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🎥 Happy Gilmore – Special Screening⁠
📅 Sunday, April 27th | 🕒 3–4:30 PM⁠
📍 Southampton Playhouse⁠
🏌️‍♂️ Sink a hole-in-one = free popcorn & soda!⁠
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🎬 Ferris Bueller’s Day Off⁠
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📍 Sunset Theater, Westhampton Beach⁠
📽 Watch a classic in a fresh new space!⁠
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Check out more events at Hamptons.com⁠
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#events #hamptons #films #yoga #restaurantweek
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