Data from the New York Fed, chart by Mish.

Note: I wrote this post last night. The inversion steepened today but that does not change the following analysis.

What Is an Inversion?

In a normal yield curve longer-term Treasuries have higher yields than short-term treasuries.

The above chart shows the opposite. Short-term yields are higher than long-term yields. Numbers below zero means inversion.

People go on recession watch when yields invert. But the wait can be long. Others say the recession signal is when the yield curve uninverts.

Steepening Yield Curve

As the yield curve has been negative for nearly 3 years now, it is the longest period in history of inverted rates, and GDP contractions (in real terms) have been the result

It's steepening now, and that's good and bad news since it now means liquidity is about to dry out ☕️

— InvestiBrew (@InvestiBrew) July 24, 2024

The Gap Shrinks

The gap between 2-year and 10-year yields is now the least inverted in two years as bond traders bet that the Fed will cut rates sooner and by a greater amount. pic.twitter.com/Dgv7jO50n6

— Lisa Abramowicz (@lisaabramowicz1) July 24, 2024

Massive Move Today

Massive move in the US yield curve today. #economy #markets pic.twitter.com/oZaeedTYSO

— Mohamed A. El-Erian (@elerianm) July 24, 2024

The 2-yr to 30-year Spread Uninverts 

The steepening trade continues w/US 2s/30s yield spread jumps to 12bps, the highest since 2022. pic.twitter.com/OQ96Z3xP11

— Holger Zschaepitz (@Schuldensuehner) July 24, 2024

No Recession?

The Yield Curve is uninverting. I do not think this will lead to a recession like all previous times! pic.twitter.com/cIaIk12hWD

— George Koutalidis (@geokoutalidis) July 24, 2024

This won’t lead to a recession because a recession has already started.

Q:Has that ever happened before?
A: Yes, at least twice.

Two Consecutive Recessions Without Uninverting

(Click on image to enlarge)

The trigger is not uninversion. None of these yield curve measures provide a good signal.

Dudley Changes His Mind, Says “Fed Needs to Cut Rate Now” to Avoid Recession

Yesterday I commented Dudley Changes His Mind, Says “Fed Needs to Cut Rate Now” to Avoid Recession

Citing the McKelvey recession indicator, former NY Fed President Bill Dudley, wants the Fed to cut rates now. It’s too late Bill, recession has started.

Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.

The best indicator of recession is a slightly modified version of the McKelvey rule. click on the above link for a series of six charts.

A recession has started but few see it yet.

More By This Author: