Investor Sentiment

investor sentiment controls the right side of the chart when investors think the economy is in good shape they take money out of long-term bonds and instead pour their money into riskier assets like stocks the lower demand causes the price of bonds to sink pushing up the yield this is an important point the price of a bond is inversely related to the yield so when bond prices sink the yields rise and vice versa but when investors think the economy is headed for a rough patch they pull their money out of stocks and put it somewhere safer like long-term bonds this causes yields to drop that started to happen at the end of 2018 investors worried that the global economy was slowing down and they put more money in long-term bonds yields which had been above 3 on 10-year treasuries fell closer to 2.5 it sounds like a small difference but that's almost a 20 change this is the key to reading the yield chart when short-term interest rates go up and investor sentiment goes down the yield curve starts to flatten and it can eventually invert investors view this as a bad omen just look at this chart every time the yield curve dips below zero a recession follows