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Marc Cuniberti: Inverted yield curve

Marc Cuniberti

A few weeks back I detailed the rising rates on U.S. guaranteed debt instruments and how investors might take another trip down to their local bank and ask about current CD and savings rates. With interest rates on bank products sneaking up in response to the FED increasing the overnight rate three times in an attempt to rein in inflation, investors are starting to wake up to the fact that the typically anemic rates at their local bank and credit unions are creeping up and might be worth taking another look at.

In an event called an “inverted yield curve,” analysts are noting that when it occurs, it has been a dependable indicator a recession is on the horizon. But the inverted curve also has a bright spot for investors.

The U.S. government finances its spending by issuing IOU securities called Treasuries, bills, notes and bonds. The different names indicate the length of the time before you get your money back. Simply put, you “buy” the debt and the U.S. in essence borrows your money and the receipt are these securities.

Which debt issue you select is based on how long you wish to loan out your money for.

Those familiar with CDs, bonds and treasuries know that a 10 year debt issue normally pays more than a 30 day debt issue. The higher payment (the interest you get) for the longer terms is because you are making a longer commitment.

Right now, in some instances, the interest you get versus how long you normally wait before being paid is inverted, hence the name “inverted yield curve”.

For example, right now, if you agree to loan your money out for two years, you might get more then if you committed to ten.


Today’s rates are definitely an aberration as it relates to normal usury rates (what you get paid for how long you lend your money out). You get more interest the longer you agree to hold the debt.

Not so right now, at least between certain time frames. Two year loans may pay you more than a ten year loan. This means in technical terms we have an inverted yield curve.

This rare occurrence is because buyers of debt are nervous about the outlook of the economy and are piling into the longer term debt instruments, such as the ten year bond. This is because they are unsure about the near term future of the stock market and are looking toward U.S. guaranteed securities to protect principal.

Higher demand for debt instruments like bonds and T-bills means the sellers of this debt don’t have to pay as much interest to entice buyers.

In essence, strong demand for the longer term bonds means lower interest needs to be paid and yields drop. Meanwhile the interest rate on two years might remain the same or even rise. This drop in the ten year note interest payments while the two year remains the same means you might make more money by buying a two year all the while getting your money back sooner.

This would suggest that, at this moment in time, while the yield curve is inverted, investors might take a look at CDs, savings accounts or Treasuries, which are short term based, and get a decent yield without committing money for two or three decades.

Savings accounts versus CDs yield curves is still normal, so savings, which are on-demand accounts, (meaning there is no time commitment) are paying less than a one month, two month or a six month Treasury, but overall it could be said rates are definitely above the near zero rates we all remember on savings, CDs and short term Treasuries.

Searching the latest Treasury and CD prices on an advisor screen as of late last week, I was seeing one month rates well north of 2% and three months well above 3% APR. Keep in mind rates can change daily and the above are only non-binding estimates.

The bottom line is U.S. 100% guaranteed bank debt such as savings, Treasury department issued debt and CDs may be offering rates that could be worth considering for risk adverse investors that want to avoid the stock market at this time.

Parking funds in U.S. government guaranteed issues will at least provide some yield while you wait for some clarity and normalcy in today’s markets.

“Watching the markets so you don’t have to”

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214

Marc Cuniberti


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