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Yield Curve Inverts To Historic Lows, Sounding Recession Warning

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The yield curve has a great historical track record in predicting U.S. recessions and it’s signaling one’s coming. The 10-year Treasury bond now yields more than 1 percent less than the 3-month bill. That’s unusual, in fact, it’s lower than we’ve seen at any point in the last 30 years. It’s been a historically robust indicator that a recession is coming. Yet, in contrast to this stark warning, the jobs market remains robust.

Slope Of U.S. Yield Curve

The Yield Curve As a Recession Indicator

The New York Federal Reserve (Fed) summarizes the research on the yield curve as a recession indicator here and finds that the U.S. yield curve is a historically reliable signal that a recession is coming on a 12-month view.

As of early December, the New York Fed put the chance of a recession in the U.S. over the next 12-months at approximately 40%. That’s relatively high, but since then the yield curve has inverted further, and it’s likely that the next update will show a far greater recession probability, perhaps with a recession more likely…

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