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Visualizing (and Understanding) an Inverted Yield Curve



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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Charted: Inflation Across U.S. Fast Food Chains (2014-2024)

Even fast food restaurants have seen their prices surge this past decade. Which ones lead in terms of fast food inflation?



Cropped chart of fast food inflation across 10 restaurant chains

Inflation Across Fast Food Chains from 2014 to 2024

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.

Fast food joints were once the go-to option for quick, cost-friendly meals, but now, they’re starting to pinch the budget.

Inflation has hit fast food chains hard in the past decade, with many restaurants seeing an average price increase on menu items of more than 50%.

This graphic visualizes the average price increase of 10 core menu items from select American fast food chains, as well as the change in the consumer price index (U.S. city average) for food away from home, from 2014 to 2024.

Fast food chain data comes from Finance Buzz and the food away from home figure comes from the Federal Reserve’s March 2024 Consumer Price Index data.

The Rising Costs of Dining Out

On average, eating at these 10 fast food restaurants has gotten 63% more expensive since 2014, as shown in the table below.

RestaurantAverage price increase of 10 different menu items (2014-2024)
Taco Bell81%
Jimmy John's62%
Burger King55%
Panera Bread54%
Food Away from Home Inflation49%

McDonald’s leads the pack in term of fast food inflation, with some of its food items doubling in price since 2014. The company likely took notice of complaints of its rising prices, and is preparing to roll out a month-long, affordable $5 combo meal deal this summer.

While not visualized on the graphic above, Subway and Starbucks were the only two restaurants that had average price increases that were lower than food away from home inflation, at 39% for both restaurants.

As the cost of dining out has increased across the board, with even fast food options surpassing overall inflation, consumers are running out of cheaper alternatives when it comes to having food away from home.

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