Nov 17, 2022 - Economy

Yield curve that matters is predicting a recession now

Yield differential between 3-month and 10-year U.S. Treasuries
Data: FactSet; Chart: Axios Visuals

It happened. The section of the U.S. Treasury yield curve that most accurately predicts economic downturns has "inverted," or gone negative.

  • And not for an intra-day blip — it's stayed that way for a couple of days now.

Why it matters: This part of the yield curve — the difference between yields on 10-year Treasuries and 3-month bills — has accurately predicted every U.S. recession since 1955.

  • When it has gone below zero, a recession followed over the next two years.

Yes, but: Some thought its predictive streak would end when it last went negative in late 2019.

  • The economy was basically fine, until the COVID crisis hit, sending it into a sharp — but brief — collapse that preserved the curve's perfect recession-calling record.

The bottom line: It's just an indicator, not an infallible omen that dooms us. But still, it's worth watching.

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