Deepest inversion since 1981, high probability of recession 2H 2023 or early 2024

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.

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.