Solano Real Estate Scene: Does inverted yield curve equal recession?

Most recessions over the past 90 years have been preceded by an inverted yield curve for interest rates. Today the two-year treasury note is paying 2.60 percent, the five-year is 2.75 percent, the 10-year is 2.86 percent and the 30-year is now yielding 2.96 percent. If the shorter-term government-backed securities start paying higher rates than the longer terms, then this is called an inverted yield curve. History tells us that almost all recessions follow inverted yield curves within a year or two, but the key word is “almost.” To explain this in layman’s terms, just think about your bank or credit union savings rates. The longer the term on your certificate of deposit, the higher the rate unless yields invert. If you deposit $25,000 in your bank and agree to a one-year term on your federally insured CD, they pay you a higher rate than a three-month CD. When short-term safe investments start producing higher rates of return than long-term investments, then obviously people are going to normally choose to tie up their money in the shorter terms. This lack of long-term investment may cause folks to sell their higher risk stocks for the safety and quality of short-term treasuries, which is obviously not good for the stock market if there are more sellers than buyers. The yield curves have flattened but have not inverted and even if they do temporarily invert, it really looks like our real estate market is healthy here in Solano County and 30-year mortgage rates remain in the mid-4s to mid-5s, depending on loan type and FICO scores.