Why rise in T-yield = lower probability of recession?

CFA Level III
#1

Hi everyone,

Can someone please explain to me why an increase in the T-note yield means a lower probability of recession? Thought higher yields = higher risk.

Thanks everyone

#2

Higher yields don’t mean higher risk if it isn’t the reason.

This usually follows the notion that people invest heavily in long term notes just before recession kicks in, to lock in a high yield.

#3

When people aren’t expecting a recession, they’ll prefer investing in stocks and selling off holdings in bonds. Selling bonds increases their yields as price falls.

#4

Thank you!