Inverted Yield Curve: Bond Market Continues to Signal Recession
100% of the time recessions have been proceeded by an inverted yield curve (short term rates are higher than long term rates).
The yield curve is currently inverted at -1.31% (as of 01/09/2024, source St. Louis Federal Reserve) and has been inverted since 11/15/2022. That’s a long time.
Some of the worst recessions have followed a deeply inverted yield curve that has been inverted for over 12 months.
Note: the yield curve inverted in the mid ‘60s, mid ‘80s, and mid ‘90s and a recession did not follow but a) the Fed stopped raising the Fed Funds rates once the yield curve inverted and b) as a result the yield curve was only inverted for a brief period of time. Federal Reserve policy that has inverted the yield curve briefly (a few months) are the only time periods where an inversion has not led to a recession, 2023 and 2024 is not a brief inversion.
Conclusion
In my opinion investors who are close to or who are in retirement should carefully consider what the bond market is telling us.
LPL 526880-1
DEFINITIONS
10 Year Treasury Constant Maturity Minus Federal Funds Rate - Treasury bond data used in calculating interest rate spreads is obtained directly from the U.S. Treasury Department. Series is calculated as the spread between 10-Year Treasury Constant Maturity (BC_10YEAR) and the Federal Funds Rate (T10YFF). Both underlying series are published at the U.S. Treasury Department.
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