Whisper it quietly, but maybe the Treasury yield curve isn’t quite as useful as many think as a recession alert, writes jmackin2
Whisper it quietly, but maybe the yield curve isn’t quite as useful as many think as a recession alert
An inversion of the U.S. Treasury yield curve has been seen as a recession warning sign for decades, and it looks like it’s about to light up again. WSJ’s Dion Rabouin explains why an inverted yield curve can be so reliable in predicting a recession and why market watchers are talking about it now. Illustration: Ryan TrefesPredicting recessions involves a lot of correlation and not a lot of causation.
The correlation is what convinces many that we’re close to a flashing warning sign. The yield curve has inverted before every recession, and one widely used version is close to inverting again. The gap between the two-year yield and the 10-year yield fell below 0.2 percentage point in the past week for the first time since the 2020 recession.
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