Money on Your Mind: The Inverted Yield Curve

The economy’s had a good run these past few years. However, Wednesday something spooked investors: the emergence of the inverted yield curve. 

So what is it and why should the average American be concerned? Financial advisor and mortgage banker Sarah Hebb breaks it down for us.

“A yield is a return on your investment. And in an inverted yield curve is when we have interest rates that are stronger on shorter terms than interest rates on longer terms. So essentially your rate of return will be higher on a 2 year than a 10 year rate of return.” 

So why is that so worrisome? 

Hebb says, “It’s a symptom of a recession.”

Bam. The R word. And Hebb says that means it’s time for you to take action.

“Number one, you want to definitely make sure that you are holding onto reserves. Keep saving money.”

You need to start stockpiling cash now before things get worse. Hebb says most economists think a recession is a year away but cautions that the situation could actually be worse than previously thought. 

“An inverted yield curve is actually a symptom of a recession. So we may already be in some sort of recession that we’re not seeing the effects of right now.”

But don’t freak out. She says even economists are having a hard time trying to figure out what’s going on in our financial world. 

“What we’re seeing is corporate earnings are strong, we’re seeing mortgage interest rates low, we’re seeing unemployment rates low but on the flip side we’re seeing this inverted yield curve, so there’s a lot of mixed messages out there right now.”

If anything, she says it’s a good idea to take advantage of low rates to lock in some additional savings

“If you’re a current homeowner, you want to refinance and capitalize on low mortgage interest rates. If you’re not a current homeowner, then you’re gonna want to put a plan in place and start talking about how can i become a homeowner and capitalize on borrowing cheap money on mortgage.”

Most importantly, take control of your finances now. Try to cut back on spending, save what you can and consider checking in with a financial advisor to maximize your efforts.  

If you’d like to follow up with Sarah Hebb and craft a financial plan, you can find her contact info on my Facebook page at Diana Alvear FOX 46