yield curve

Robert Kiyosaki Recession Fears and the Yield Curve

May 4th, 2024 – If you’ve read “Rich Dad Poor Dad,” you’re familiar with Robert Kiyosaki’s views on building wealth and navigating financial risks.

yield-curve

Lately, he’s been voicing concerns about the U.S. economy, suggesting it might be heading into a recession with an inverted Yield Curve and warning about the risk of a serious market crash.

So, how do we know if a recession is coming? One key indicator is the “inverted yield curve.” This happens when short-term Treasury bonds start offering higher interest rates than long-term ones, which is unusual and often a sign that the economy might be in trouble. There are other clues, too—like the Sahm Rule, which tracks unemployment trends, or just looking at GDP growth, interest rates, and inflation.

The inverted yield curve can be a big red flag. It’s like hearing a weather report that says a storm’s on its way—you might not feel the rain yet, but you start thinking about whether your umbrella’s handy.

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yield curve is now inverted
Note: According to the current yield spread, the yield curve is now inverted. This may indicate economic recession.

Surprisingly the Yield Curve inverted on May 2, 2024. As of May 2, 2024, the yield on a 1-month Treasury bill is 5.337%, which is higher than the yields for longer maturities: the 2-year yield is at 4.885%, the 10-year yield is at 4.589%, and the 30-year yield is at 4.734%. This inversion, where short-term interest rates are higher than long-term rates, is often viewed as a predictor of a recession. The last time the yield curve inverted was in October 2023, when the yield for a ten-year U.S. government bond was lower than the yield for a two-year bond.

Yield curve
Note: The gray bars throughout the charts indicate the past U.S. recessions since 1967. A quick look at the “Historical Treasury Yield Spread (10Y-1Y)” graph suggests that historically, an economic recession generally follows once the yield spread drops below 0% (the red Y-axis). This is especially true for recessions during the late 1900s. The yield spread reached an all-time low of -3.10% around April 1980, during the economic recession of the early 1980s.

If you’re following the markets or planning your finances, these signals can be important. It’s not about panic, but being aware of potential changes and thinking about how you might need to adjust. Whether you’re investing for the future or just trying to keep your savings safe, it’s worth paying attention to these signs. Stay informed, stay flexible, and remember that times of uncertainty can also bring opportunities.

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