Financial headlines often refer to the yield curve as a way of assessing the current health of the U.S. economy and predicting where it may be heading. More specifically, a yield curve is a line graph that plots interest rates of U.S. Treasury bonds against different time horizons until they mature, which can be anywhere from 30 days to 30 years. The shape and slope of the curve offer investors an indication of whether interest rates are expected to rise or fall, which can provide important clues regarding the broader economic outlook in the future.
As of March 18, 2025, the U.S. Treasury yield curve is sloping upward, indicating that longer-term bonds are yielding higher interest rates than shorter-term ones. This is considered a normal yield curve, evidenced by a growing and expanding economy and rising inflation. Under these circumstances, the expectation is that the Fed will raise interest rates in the future. As the curve gets steeper, curving upward with a wider “spread, or difference between yields on short and long-term bonds, there is a heightened expectation that the economy will continue to grow.
A flat yield curve typically occurs during transitionary periods, such as when an expanding economy begins to slow down or vice versa. During these times of uncertainty, the Fed will tighten monetary policy to curtail future growth. The spread between short- and long-term yields would be close to zero as the Fed increases short-term rates while longer-term rates fall with diminished inflation expectations.
With a downward-sloping inverted yield curve, short-term interest rates are higher than long-term rates. When this occurs over an extended period of months, there is a market expectation that the Fed will hold interest rates stable or reduce them to stave off a recession. Historically, an inverted yield curve has preceded the last six recessions by 12 to 18 months, however, it is not the only factor that led to back-to-back periods of negative economic growth.
Looking at the yield curve can be a good way for investors and business owners to plan for the future. For example, it is a good idea to lock in interest rates during a normal yield curve, which could indicate the potential for higher borrowing costs in the future. Similarly, a flattening or inverting yield curve can be a red flag for a weakening economy and the need to amend investment and estate planning strategies.
About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisor (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Todd A. Moll, CFP®, CFA, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. There is an inverse relationship between interest rate movements and fixed-income prices. Generally, when interest rates rise, fixed-income prices fall, and when interest rates fall, fixed-income prices generally rise.
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Posted on March 28, 2025