Skip to main content
PGIM LogoPGIM Logo
    • Megatrends
    • Annual Best Ideas
    • Quarterly Market Outlooks
    • Market Events
    • Thought Leadership
    • Events & Webinars
    • ESG Investing
    • Investing in Alternatives
    • Reaching for Yield
    • Clients We Serve
    • Defined Contribution
    • Institutional Relationships
    • Advisory Solutions
    • Global Locations
    • Contact Us
    • Overview
    • Leadership
    • History
    • Inclusion & Diversity
    • Global Locations
    • Jennison Associates
    • PGIM Fixed Income
    • PGIM Private Capital
    • PGIM Real Estate
    • QMA
    • PGIM Investments
    • PGIM Global Partners
    • Contact Us
    • Subscribe
    • Request for Information
    • Careers at PGIM
    • Job Opportunities
    • All News
    • Press Releases
    • In the News
    • Facts & Figures
    • Media Contacts
poc_banner
In the News

What is an inverted yield curve, and what does it mean?Whatisaninvertedyieldcurve,andwhatdoesitmean?

By PGIM Global Communications — Aug 20, 2019

5 mins read

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL

Share

Everyone’s talking about the inverted yield curve and how it could signal a recession. Robert Tipp, chief investment strategist and head of global bonds for PGIM Fixed Income, explains.

Just what is an inverted yield curve?

An inverted yield curve is when yields on long-term Treasury securities are lower than yields on short-term securities. Most of the time, yields on cash, money market funds, bank deposits and short-term Treasurys are lower than long-term Treasurys such as 10-year, 20-year and 30-year bonds. But there are times in the business cycle when short-term interest rates are higher than long-term Treasurys, and that’s called an inverted yield curve.

Why is everyone talking about it?

Historically, inverted yield curves have preceded economic slowdowns. So investors have been conditioned to worry about the onset of an inverted yield curve as potentially signaling the possibility of a recession and downdraft in the markets.

Why is this happening?

Two opposing factors caused the inverted yield curve. First, over the past few years, the Fed pushed short-term rates up about 2%. Second, long-term rates have fallen, pushing them a bit below the short-term rate, inverting the yield curve. While in past cycles the drop in long-term rates signaled investors’ concerns about a slowing economy, this time the drop in long-term rates has likely been exaggerated by the low level of foreign interest rates. Negative long-term rates in Europe and Japan have likely resulted in above-average demand for U.S. long-term bonds. This demand has likely pushed down long-term U.S. rates and contributed meaningfully to the inversion of the yield curve.

Is a recession coming?

While we can’t be sure, in our view the odds of a recession currently look quite low. The economy is growing reasonably well. The Fed has reversed course after its modest hiking cycle and is trying to foster growth by cutting rates. Unlike past inversions, interest rates are quite low—probably low enough to boost growth after their recent decline.

How is PGIM responding to the inversion?

We continue to be guardedly optimistic that we’re not facing an imminent recession. So we are taking advantage of opportunities in the market to get incremental yield in sectors we think will benefit from this economic environment of ongoing moderate growth and stable inflation.

Should individuals be making any financial moves?

Investors always face uncertainty. The best course is usually to stick with your long-term strategy and not make ad hoc adjustments based on the latest news headlines. At PGIM Fixed Income, we believe that’s the case today as much as ever. But you should talk to a financial professional about your own situation before making any moves.

Media Contact

Claire Currie
973-802-4040
claire.currie@pgim.com

Learn More
Newsroom
Press releases, photos, video, audio, PR contact information, presskits and more.

Learn More

Learn More
Read PGIM Fixed Income’s perspective

U.S. Rates: Low for Long and Likely Positive

Learn More

  • By PGIM Global CommunicationsNewsroom, PGIM

You May Also Like

Diving Deeper: PGIM Private Capital
Article

Diving Deeper: PGIM Private Capital

By PGIM Global Communications — Dec 21, 2020

Boom or bust, there's always a need for PGIM's private debt asset manager.

The Hunt for Yield Intensifies in 2021
In the News

The Hunt for Yield Intensifies in 2021

By David Hunt — Dec 18, 2020

David Hunt, President and Chief Executive Officer, PGIM, joins Bloomberg’s “The close” to discuss the intensifying hunt for yield.

PGIM Takes a ‘Thoughtful’ Approach to Travel During the Pandemic
Interview

PGIM Takes a ‘Thoughtful’ Approach to Travel During the Pandemic

By Pamela Sinclair — Dec 16, 2020

As the world starts to think about life after COVID-19, many are wondering what role travel will play in the workplace going forward.

  • Insights

    • Megatrends

    • Annual Best Ideas

    • Quarterly Market Outlooks

    • Market Events

    • Thought Leadership

    • Events & Webinars

  • Investment Themes

    • ESG Investing

    • Investing in Alternatives

    • Reaching for Yield

  • Clients

    • Clients We Serve

    • Defined Contribution

    • Institutional Relationships

    • Advisory Solutions

  • About

    • Overview

    • Leadership

    • History

    • Inclusion & Diversity

    • Global Locations

    • Contact Us

    • Subscribe

    • Request for Information

  • Careers

    • Careers at PGIM

    • Job Opportunities

  • Newsroom

    • All News

    • Press Releases

    • In the News

    • Facts & Figures

    • Media Contacts

PGIM Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • UK Regulatory Disclosures

Prudential Financial, Inc. and its related entities.

For Professional Investors only. All investments involve risk, including the possible loss of capital.

It is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM, Inc., is the principal asset management business of PFI and is a registered investment advisor with the US Securities and Exchange Commission(SEC). Registration with the SEC does not imply a certain level of skill or training.  PGIM is a trading name of PGIM, Inc and its global subsidiaries.    

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V. with registered office: Gustav Mahlerlaan 1212, 1081 LA  Amsterdam, The Netherlands. PGIM Netherlands B.V. is, authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands (Registration number 15003620) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined  under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II).  

In Japan, investment management services are made available by PGIM Japan, Co. Ltd., ("PGIM Japan"), a registered Financial Instruments Business Operator with the Financial Services Agency of Japan. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a Singapore investment manager that is licensed as a capital markets service license holder by the Monetary Authority of Singapore and an exempt financial adviser. These materials are issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Sections 305 of the SFA. In South Korea, information is issued by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.    

Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. PGIM, the PGIM logo and Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.  The information on this website is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In making the information available on this website, PGIM, Inc. and its affiliates are not acting as your fiduciary.    

©2021 PFI and its related entities.