What does the US yield curve tell us

Many observers see a downward-sloping, or “inverted,” yield curve as a reliable predictor for a recession.

The chart shows the yield curve’s slope – specifically, the difference between the interest rates paid on 10-year and three months Treasury securities – is currently around 80 basis points. This is the lowest spread since the last recession.

The case for worrying about yield-curve flattening is apparent in the chart. The shaded bars represent recessionary periods. In the three most recent recessions were preceded by a flat (and, for a time, inverted) 10year/3 mth. spread. We are currently at a stage where the yield curve warns us, that the next big thing in the financial markets could be a US 2019 recession.