If you’ve been following the news recently, there’s no doubt you’ve heard about the inverted yield curve. However, this term is unfamiliar to many, and you may be curious about what the inverted yield curve means. While there are no concrete rules regarding this phenomenon, it’s generally regarded as a potential sign of a looming recession. Don’t panic, though—here, we discuss the details on this occurrence and outline what it may (or may not) mean for you.
What is an Inverted Yield Curve?
When the economy is going strong and investor confidence is high, long-term U.S. Treasury bonds pay more than short-term investments. When the reverse is true, this is regarded as an inverted yield curve, and it may signal that trouble is ahead for the economy. In August 2019, the U.S. Treasury’s 2-year bonds yielded more than 10-year bonds, which has historically been a reliable indicator for an economic downturn.
Each major recession since 1956 has been preceded by an inverted yield curve, so this news made a big splash in the business world and beyond. Prior to the most recent inverted yield curve, the last instance began in 2005, and the financial crisis followed in 2008. However, it’s important to be aware that this trend doesn’t always mean that a recession is just around the corner. Since the 2019 inverted yield curve occurred only briefly, it’s difficult to predict the long-term implications.
So, what does this mean for potential homebuyers? If you’ve been thinking about buying a house, now may be a great time to consider proceeding. The Federal Reserve recently slashed interest rates, and more interest rate cuts may be on the horizon. Although we recently experienced an inverted yield curve, this shouldn’t deter you from making the foray into homeownership if you’re ready to buy.
As long as your credit is in good standing and you’ve determined how much house you can afford, it’s usually a wise decision to buy. If you’re interested in reaping the benefits of the Federal Reserve’s recent interest rate cuts, now is a great time to get in touch with a lender.
By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail email@example.com or visit michaelaphillips.com. NMLS: 312874.