An inverted yield curve, which is when long-term interest rates are lower than short-term interest rates, has often been an indicator of an upcoming recession.
Here’s a chart showcasing the state of the current interest rate market:
As you can see from this chart, displaying the 10 year Treasury yield, minus the 3-Month Treasury yield…It’s a pretty reliable indicator that we enter a recession at some point when the 3-Month Treasury yields more than the 10 year Treasury (below zero on the chart, shaded gray areas are recessions)…
Some notable recessions after yield curve inversions:
- 1966, and a recession followed in 1969.
- 1980, and a recession followed in 1981.
- 1989, and a recession followed in 1990.
- 2005, and a recession followed in 2007.
- 2019, and a recession followed in 2020
It’s important to note that an inverted yield curve is not the only indicator of a recession, and there have been instances where an inverted yield curve has not been followed by a recession. However, it has been a reliable predictor in the past and is worth considering as one factor when assessing the economic outlook.
You may get objections from prospects/clients that they want to “wait” to purchase an annuity because they want to wait for another rate hike, since they think fed isn’t done hiking. This may not be a great strategy, because longer term bonds may not follow suit with the shorter duration (as you can see with the inverted yield curve chart) bonds. In fact, it is possible that the longer-term bonds that insurance companies buy to support their annuities have already peaked.
In conclusion, it looks like 2023 will be an exciting year. And with the potential for uncertainty, it could also be a good year for annuity sales. As we know, there are two main reasons that retirees may choose to purchase annuities: guaranteed income and asset protection. But ultimately, the most compelling reason may be the peace of mind in the face of uncertainty.
Have a wonderful holiday season and let’s remember to keep our dreams big, and know that we have the tools and resources to make them a reality. And as always, we are here to support you every step of the way.