You’ve probably heard of the inverted yield curve.
It looks at the “spread” – or gap – between the yield on the 3-month Treasury bill and the 10-year Treasury note.
When investors are optimistic about the future, the yield on the longer-dated bond is higher than on the shorter-dated bond.
And every time this relationship has inverted over the past 30 years, a recession has followed within the next 18 months.
That’s what makes the chart below so important. It’s of the yield curve back to the start of last year.
As you can see, the yield curve was inverted all last summer. It then recovered as U.S.-China trade war tensions eased. Then, it went positive again last October.
Now, it’s inverted again. This signals that investors see little growth ahead.
That’s not a guarantee a recession is coming. But it’s as solid an early indicator as you can find. And it’s flashing red.
– Chris Lowe
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