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Can Bond Yields Really Predict Recession?

Morningstar Investment Management's Dan Kemp looks at yield-curve inversion and cautions that it may not be a reliable indicator of what's in store for the economy.

Can Bond Yields Really Predict Recession?

Dan Kemp: You may have recently heard about the phenomena of yield-curve inversion and be wondering what this means and how it may affect your investments.

The yield curve simply describes the interest rate an investor can obtain by lending money over specific time periods. Investors typically demand a greater interest rate for lending money over longer periods to compensate for the fact that uncertainty increases as we look further into the future. By drawing a line between these varying interest rates on a chart, a “curve” typically appears and hence we talk about the “yield curve.”

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