Why do longer CMT maturities sometimes have yields lower than the shorter maturities (i.e., “inverted yield curve rates”)?
The yield curve and CMT yields reflect actual bond market activity and current economic conditions. Market conditions can be highly volatile and include investors’ beliefs as to the direction of future interest rates as well as monetary policy that may be actively pursued by the Federal Reserve. As such, short term rates can sometimes exceed longer term rates. In the past, an inverted yield curve was thought to be an indicator of an imminent recession; however, recent economic history has tended to discount that theory.
