What is the yield curve inversion? Been hearing about it being big news?

Yield curve inversion is basically when expectations of future interest rates are lower than the current interest rates. This usually happens when economic outlook of the future time periods are poorer (eg. during an economic downturn) and this will cause the fed to lower interest rates to stimulate growth. Therefore investors would adjust their portfolios to be heavier on LT fixed rate bonds.

As you would have seen on current headlines, this is the first time yield curves has been inverted since 2007 before the financial crisis. This is thus a good indicator of a coming recession.

Update: Chanced upon this article which I felt is pretty relevant. It basically says a yield curve inversion is not exactly telling about the market timing situation as well.

http://knowledge.wharton.upenn.edu/article/dont...

"As you would have seen on current headlines, this is the first time yield curves has been inverted since 2007 before the financial crisis. This is thus a good indicator of a coming recession. "

Just want to add on to what Leonard has mentioned.. In fact, the phenomenon of the inversion of the yield curve leading up to a recession has happened a few times over the last few decades. Hence, many investors are spooked because of the predictive ability of the yield curve to forecast an incoming recession.

The inversion of the yield curve happened in the 1980s Latin America Sovereign Debt Crisis, Savings and Loans Crisis in the 1980s and 1990s, DotCom Bubble Burst, as well as the most recent Subprime Crisis.