Bonds: A frightening recession indicator

“Stock market investors are being spooked this week by what’s happening in the bond market,” said Kevin Kelleher in Fortune.com. The return on three-year government bonds last week rose higher than that on five-year bonds. That’s called an “inverted yield curve.” It happens when investors see bad economic news ahead and want to lock in longterm interest rates. “For economists and investors, it’s a loud warning about the economic outlook.” What happened last week is a “partial inversion.” Investors are now watching for a full inversion, with twoyear bond yields rising above 10-year. Historically, that has a “scarily accurate track record of predicting recessions.”