An inverted yield curve is an indication of impending doom. Investors demand a premium for short term risk.
During recession, the yield curve flattens (because short term rates are impacted more than long term rates due to Fed policy). As the economy recovers, the yield curve takes the more usual upward sloping shape. Is this correct?
It makes sense.
An impending recession makes investors to move from equity markets to fixed income markets. Higher demand for bonds makes rates to lower. First, the longer terms. Then, the shorter terms. Probably, investors will stay on bonds for years. Also, probably, investors will dive into alternative investments (gold first, other materials after, and so on). That’s another whole story.
True, all rates will be impacted by the quantitative ease.
Yes, in normal stages, correlations, risk and return, risk premiums, etc recover their true relationships, so the curve.
Gracias