Why is the Yield Curve inverting?

Trump

St. Louis Fed Video: Why does the Yield Curve Typically Invert Before Recession?

Basically, people get concerned about recession and market declines and bid up longer term bonds, causing their yields to decline while short term yields stay the same.

it is a supply demand thing. so yes is the short answer There is more demand to lock in rates on the long term because of fear of reducing the overnight lending rate or lowering of other rates for an extended period of time so there is a rush to lock in 3-5 year notes. currently the 3 month is inverted with 1 year 3 year and 5 year.... probably flattens at 7. Who are the buyers? those are gonna be insurance companies, banks, bond funds, and other countries trying to stabilize their currency.

Fed raised rates three times in 2018.

that isn't a reason. fed raises rates people flock from long term bonds decreasing the price on the long end thus raising the yields on the longer end. The demand isn't there for long term and the yields adjust accordingly... your simple theory is incorrect. but please try again

If your theory is correct, why haven't people sold the long bond? Since the last fed hike in December, the 30yr bond has gone from 3.3% to 2.69%, indicating that there is still demand for the long bond. The demand is probably there because other countries are buying our debt which has relatively high yields compared to other countries such as Germany and Japan. I still believe that had the fed not raised short rates, the yield curve would not be flat or inverted.

in a rate rising environment all things being equal the long bond adjusts accordingly with every rate increase. Fed has stated there will likely be no more rate increases this year. So in a perfect world we should see rates have a standard upward curve reflecting the time value of money. We are not in a perfect world. The world seems to think that there is medium to long term risk global economic risk and that U.S rates short term rates are going to move towards zero.

kinda. It is difficult to explain, I have a little knowledge from working with some institutional sales reps that trade agencies (fannie, freddie etc).

sounds like you get it but aren't communicating it effectively which i'm probably doing as well. Think of you as the bank. If you can loan money at 2.5% for 5 years or 3% at 1 year which would you take (loan demands remaining constant) Normally you would want to do the second option if you knew that renewing the loan every year you would get 3%, but if you are predicting that next year rates are going to go to zero and stay there for multiple years you are better off doing the longer maturity locking it in now. You could make 3% for year one, but years 2-5 make zero percent. or lock in 2.5% for 5 years which would yield a better return.

The prices are driven by fear of diminishing returns in the interest rate market and capital flocking out of equities to safety which would be treasuries as considered the most safe.

The best people to explain it are the older institutional bond traders or older dudes managing capital for insurance or banks