Definition
An inverted yield curve is when interest rates on long-term bonds fall lower than those of short-term bonds. This can signify an impending recession; an inverted yield curve emerges roughly 12-18 months before a recession.
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Quick Take
- Many different inversions have occurred across the yield curve, with the US10Y – US02Y deeply inverted as low as the 1980s.
- The 2/10 spread has inverted almost 30 times since 1900; in 22 instances, a recession has followed.
- In addition, the 3m10y spread has reached a -100 bps inversion, the deepest in several decades.
- This inversion points out the fed policy error that the fed will break inflation but could also break the economy.
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