Recession Warnings from the Yield Curve?
Bloomberg (YouTube Video)
February 15, 2022
An inverted yield curve – when short-term US Treasury securities offer a higher return than longer ones – has foretold the last five recessions. In recent weeks, as the Federal Reserve anticipates raising interbank borrowing rates while also buying down interest rates of mortgage and other long-term debt, there is renewed attention on what is now a flattening yield curve. “Historically, economists attribute a good deal of predictive power to the shape of the curve, believing that a flattening curve is saying that a recession is possible, and an inverted curve is saying that a recession in probably,” explains Jim Iuorio, Managing Director at TJM Institutional Services. “Of course, every two situations are not the same and this time there are some elements that may be obfuscating the message.”