WTH is an Inverted Yield Curve…and Why Does It Even Matter?

WTH is an Inverted Yield Curve…and Why Does It Even Matter?

Most investors today still have an extremely vivid picture of the financial devastation that occurred during the 2008 economic recession. In fact, depending on what you were invested in at that time, there’s a chance that you and your portfolio still haven’t fully recovered.

That being said, you may need to tighten your seatbelt, because based on what the “market” is trying to tell us, there could be some clear warning signs coming into view.

Buckle Up for a Curvy Road Ahead

It seems that over the past decade or so – and particularly during 2018 – the market has bounced up and down…with more downs than ups lately.

And, while nobody has a crystal ball that can help to predict what will occur going forward, there are some clear warning signs that we may be in for a bumpy ride ahead.

For instance, in early December (2018), the spread between three- and five-year yields fell to a negative 1.4 basis points – and dropped below zero for the first time in more than a decade.

In fact, for the first time since 2007, the yield curve has actually inverted.

So, what is a yield curve, and why the heck should it matter what it does?

In its most basic sense, a yield curve is a gauge of sorts that can help to show the difference between interest rates and the return that investors will get if purchasing longer- or shorter-term debt.

The way a yield curve works is that, when it goes flat, the premium for longer-term bonds falls to zero. If the spread goes negative, then – which essentially means that short-term yields are higher than those of longer-term debt – then the yield curve is said to be “inverted.”

But again, why should this be of any concern? After all, it’s just one simple move on a graph.

It is actually a very big deal, though. That’s because basically, this move could be a sign that the market is heading south, and in turn, an indication that the economy could be heading into another downturn.

Are We Moving Towards Another 2008?

Given this yield curve inversion, are we heading full speed into another 2008?

In a word, “possibly.”

In other words, data like yield curves don’t lie. On top of that, an inverted yield curve did, in fact, preceded both the 2008 stock market crash, as well as the first tech bubble.

With that in mind, though, nothing is carved in stone. And, given the many, many components that tend to move the market these days, it could be that what we are seeing now is just a slight hiccup.

In any case, if you’re in or nearing retirement, this may not be the best time to simply “ride it out.” A better plan may be to look for some alternatives that can still allow you to attain market-related growth, but that will also keep your principal safe…just in case.

At Annuity Gator, we specialize in analyzing all types of annuities. So, whether you have aggressive tax-deferred growth as your primary objective, or you’d rather know that your money is safe – regardless of what occurs in the stock market, or even in the economy overall – there are options available for you.

Want to take a closer look at what an annuity could provide for you and your financial objectives? Feel free to reach out to us using our secure contact form.

WTH is an Inverted Yield Curve…and Why Does It Even Matter?

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