Yield curve inversions: A study of country-level and firm-level stock reactions

We examine the short-term stock reactions to yield curve inversions. Our country-level analysis reveals that including the United States, only 13 out of 41 countries exhibit significantly negative stock returns when yield curves invert. Hence, while inverted yield curves act as a negative signal in some countries, it is not a ubiquitous rule internationally. Our firm-level analysis is the first of its kind. We find that company stocks exhibit strong responses with 3-day cumulative abnormal returns averaging −1.22% globally and −2.83% for US firms. The results suggest that corporate bond yield curves contain valuable information of firms' future performance.