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US Entering a Recession? Does this Mean an Early US Peak to the Cycle?

Updated: Dec 1, 2023

There’s a lot of fear at the moment regarding rate rises and their ongoing effect on the economy.


No one expected the latest 0.25% increase in the cash rate — it caught markets by surprise.

There’s now clear indication that the RBA may have tightened too much, and as a consequence, the Australian 2–10-year yield curve has *just* inverted.


Australian yield curves

Source: AMP Capital


An inverted yield curve might sound like some complex financial jargon, but it’s pretty straightforward once you break it down.


The yield curve is just a fancy way of talking about the interest rates that the government pays on its bonds.


It shows how those interest rates change over time for different loan durations. Usually, the longer the duration of the loan, the higher the interest rate.


When we say the yield curve is inverted, it means that this normal pattern gets flipped on its head. In other words, the interest rates on short-term loans, like three-month or two-year bonds, become higher than the rates on long-term loans, like 10-year bonds.


So why is it a bad omen for the economy?


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