Ken Fisher Explains the Yield Curve and Why it Matters

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses the yield curve. Ken believes the yield curve is important economic indicator because it correlates with banks’ profitability and willingness to lend. He says a steep yield curve—where interest received on long-term loans exceeds banks’ short-term deposit costs—incentivizes lending and drives economic activity. Conversely, Ken says, when short-term rates exceed long-term rates (an inverted yield curve), lending conditions can suffer—potentially signaling a recession ahead.

Ken believes recent concerns on one yield curve measure—the narrowing spread between the 2- and 10-year US treasury rates—are misguided because it does not accurately reflect banks’ profit margins. He suggests using the 90-day and 10-year spread is a better yield curve measure and appropriately accounts for banks’ short-term borrowing costs relative to long-term loans.