In one of the previous blogs, I had mentioned about the negative yield curve. Well....thats what the economy is going through now. A negative yield curve is one of the indicators that has always played prequel to economic slumps in the past. An example can be quoted from the 1998 US Stock market slumpdown, during which the US market saw a lot of IT based startup companies who had borrowed a lot of funds for keeping the business running but in the end many went down. (I recommend Startup.com, a real life documentary, which shows the nuances of not only starting a new company, but also keeping it running during a market downturn)
To get an idea of an inverted curve, try plotting a graph between the rate of return for Government bonds and the period to maturity. If the plotted curve is sloping upwards, the economy has lots in store for you. If the curve is sloping downwards, and you are a fresher who has just arrived in the market, you are in neck deep trouble!!
Image Courtesy: www.Wikipedia.org
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