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Inverted Spread

What does Inverted Spread mean?

A market situation when short-term yields are higher than long-term yields. Inverted Spread occurs when a short-term instrument yields a higher rate than a long-term instrument.

In normal market situations, longer term instruments should yield higher returns to compensate for time. However sometimes due to economic uncertainties or miss-match of supply and demand for the particular instruments, the spread becomes inverted.  This produces an inverted yield curve.

Futures Knowledge Explains Inverted Spread

For example, in January, 2006, the 2-year US Treasury bill yield rose to 4.54%, more than the 10-year US Bonds yield of 4.49%.

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