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Visualizing (and Understanding) an Inverted Yield Curve

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Visualizing (and Understanding) an Inverted Yield Curve

For a few months in 2019, the yield curve inverted and warned of a potential recession.

Towards the end of 2021, it happened again. And throughout 2022, the inverted yield curve has looked more and more extreme. So what does an inverted yield curve look like, and what does it signal about an economy?

The above visualization from James Eagle shows the yield curve from November 2021-2022 using eurodollar futures yields—which serve as an indicator for the direction of the yield curve.

What Denotes an Inverted Yield Curve?

Generally speaking, the yield curve is a line chart that plots interest rates for bonds that have equal credit quality, but different maturity dates.

In normal economic conditions, investors are rewarded with higher interest rates for holding bonds over longer time periods, resulting in an upward sloping yield curve. This is because these longer returns factor in the risk of inflation or default over time.

So when interest rates on long-term bonds fall lower than those of short-term bonds, it results in an inverted yield curve.

The worrying trend is that an inverted yield curve in key government securities such as U.S. Treasuries can often foreshadow a recession. For every recession since 1960, an inverted yield curve took place roughly a year before, with just one exception in the mid-1960s.

This is because the yield curve has steep implications for financial markets. If the market predicts economic turbulence, and that interest rates will fall in the long term, investors flock to buy longer-dated bonds.

Eurodollars: A Hedging Tool

Let’s now look at eurodollar futures, as seen in the above visual.

Eurodollars are not to be confused with euros, the currency in the European Union. Instead, they are U.S. dollars held in term deposits outside of the United States. Originally it applied to accounts specifically in Europe, hence the “euro” prefix.

The video above charts eurodollar futures, which allow banks and companies to secure interest rates today for USD funds they plan to lend or borrow at a future date. In short, the yields on these futures can tell us how banks and companies around the world feel about interest rates—and economic strength.

How The Yield Curve’s Inversion Has Gotten More Extreme

The animation above clearly shows how the yield curve hasn’t just inverted, it has become more severe:

DateYield CurveExample Eurodollar Futures Yield
Jan-Feb 2022Upward SlopingMar 2023: 1.3%
Mar 2024: 2.0%
Mar-Aug 2022FlatMar 2023: 2.5%
Mar 2024: 2.5%
Sep-Nov 2022Downward SlopingMar 2023: 5.0%
Mar 2024: 4.0%

As the above examples show, yields on March 2023 eurodollar futures contracts have continued to rise over the course of the year—from 1.3% to 5.0% by November.

Meanwhile, March 2024 eurodollar futures yields over the same time period began higher than their 2023 counterparts but eventually became eclipsed.

And more immediately, December 2022 eurodollar futures yields in November were much higher than 2024 yields. Not only does this indicate investor pessimism, it suggests that the market expects interest rates to fall by 2024 and for inflation to decline.

The Flip Side

On the other hand, market expectations of looser monetary policy in the future could miss the mark.

“I suspect the market is getting a little ahead of itself in terms of pricing in cuts… Central banks have still been talking about holding rates at higher levels for longer.”

– Andrew Ticehurst, rates strategist for Nomura Inc.

As 2023 unfolds, investors will be watching closely to see if the inverted yield curve indeed serves as a recession harbinger, and the wider consequences of this potential outcome.

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This article was published as a part of Visual Capitalist's Creator Program, which features data-driven visuals from some of our favorite Creators around the world.

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Markets

The Most Popular TV Brands in the U.S.

Korean brands dominate the U.S. TV market.

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A stacked bar chart ranking the most popular TV brands in the U.S.

The Most Popular TV Brands in the U.S.

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Every year, over 40 million TVs are sold in the U.S., making the device a flagship technology in many American homes.

In this graphic, we illustrate the most popular TV brands in the U.S. based on a 2023 Statista survey of over 8,000 American adults. Respondents were asked, ‘What brand is your main TV?’

Korean Brands Dominate the U.S. TV Market

Samsung and LG combined account for 52% of the TV market share. Interestingly, the two firms have a partnership in place, with LG supplying OLED TV panels to Samsung since 2023.

TV BrandCountry% of Respondents
Samsung🇰🇷 South Korea33
LG🇰🇷 South Korea19
Vizio🇺🇸 U.S.11
Sony🇯🇵 Japan7
Hisense🇨🇳 China5
TCL🇨🇳 China5
Philips🇳🇱 Netherlands3
Insignia🇺🇸 U.S.2
Sanyo🇯🇵 Japan2
Toshiba🇯🇵 Japan2
Sharp🇯🇵 Japan1
Other or don't know--9

Vizio, a California-based company, holds the third position, but its TVs aren’t manufactured in the United States. Rather, they are produced by Taiwanese companies AmTran Technology and Foxconn, the latter being a major manufacturer of the iPhone.

Further down the ranking is Insignia, owned by U.S. retailer Best Buy. While it’s uncertain who produces Insignia TVs, some speculate they’re made by China’s Hisense.

Despite holding the largest market share, South Korea ranks behind Japan in terms of the number of companies among the top brands. Japan boasts four brands on our list, with Sony ranked 4th overall, capturing 7% of the responses.

Growing Market

The U.S. is witnessing a surge in demand for high-definition televisions, driven by consumers’ desire for a more immersive home viewing experience.

Globally, the U.S. leads in revenue generation, with the American TV market projected to generate $18.2 billion in revenue in 2024.

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