Question

Does the shape of the yield curve determine how you, as an investor, make investment decisions? If so, in what ways?

Answer 1

Yes, I follow on the direction of the yield curve in order to make long term investment decisions because I will be providing signal about the direction of the economy in the short as well as long run.

When there would be a flatter yield curve and there would be an expectation of yield curve slowly moving upward and then becoming an upward sloping, then I would be like in to invest higher amount in market for the longer period of time because I think that there was an economic recovery which is round the corner and it can provide me with a bull run in securities.

When there is an yield curve inversion, it would be signalling towards an impending recession and I would be trying to take my money off the table and waiting for events to unfold because most of the time when yield curve inversion has taken place, it has resulted into recession.

Hence, it can be said that shape of a liquid will be determining how I as an investor will be making investment decision for the longer period.