The yields on commercial papers (CPs) and certificates of deposit (CDs) are nearing the 10-year G-Sec levels (long-term risk-free rate). This has implications for investors in debt instruments, who are looking at how to invest in such a rising interest rate environment.

Inverted Yield Curve Often Heralds Recession

The governments around the world, in their urgency, to enable their healthcare systems and avoid systematic failure, during the COVID-19 pandemic, governments around the world introduced heavy liquidity. This excess liquidity has caused countries to catch a new infection: inflation!

To combat this, interest rates are being hiked. We all know that when yields on short-term paper exceed yields on longer-dated securities, this phenomenon is called an “inverted yield curve”. As per Economic Theory, an inverted yield curve is a lead indicator of economic recession. Almost every major global economic crisis has been preceded by an inverted yield curve. Thus, rising short-term interest rates are not good news for the economy.

Continue reading this on the Jama Wealth Insights blog – How To invest in a rising Interest rates