Yield Curve
The yield curve plots interest rates on government bonds at different maturities.
In a normal yield curve, longer-dated bonds yield more than short-dated ones — investors demand extra return for locking money away longer. When short rates rise above long rates, the curve inverts.
An inverted yield curve has historically preceded recessions in the US, making it one of the most closely watched macroeconomic indicators. The logic: if short-term rates are higher than long-term rates, the market expects rates to fall — typically because it anticipates economic weakness.
For stock investors, the yield curve matters because it affects borrowing costs for companies, the relative attractiveness of equities versus bonds, and the profitability of bank lending.
Further Reading
Philip Fisher's growth-investing classic on evaluating management and moats.
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Philip Fisher's growth-investing classic on evaluating management and moats.
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