Fears of a recession have increased in the wake of the brief, modest yield curve inversion in March. It is true that the last six US recessions were preceded by an inversion of the Treasury yield curve. This happens when short-term rates rise above those of longer-dated bonds.

On March 22, the yield on the benchmark 10-year Treasury note fell to 2.42%, dropping below the rate on three-month T-bills, marking the first yield curve inversion since July 2007. The logical conclusion is that if a recession followed the past six inversions, the next one must be on the way.

That’s not a fact, rather, it’s a belief that has permeated the investment community, with many market commentators citing prior inversions to confirm their conclusion that a recession must be just around the corner. Yet there are no obvious signs that we’re headed for a recession later this year or early next year.

Maybe we should look at the recent brief, modest yield curve inversion as compared to prior inversions, and more importantly, what caused it to occur. There are some key differences – including whether the inversion was caused by rising front-end (short-term) rates or by falling back-end (long-term) rates.

We can see in the chart below that the yield curve inverted prior to each of the last six recessions. Most of those inversions occurred because the Fed rapidly tightened monetary policy (raised rates) to fight inflation and counter previous policy that might have been too stimulative for too long. This caused front-end rates to rise well above inflation, making money expensive.

When money becomes very expensive, it causes a drop in economic activity and a recession follows, typically about a year later. Some economists call this a “bear inversion.”

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But this time around, rather than an aggressive Fed raising rates to curtail inflation (inflation remains quite low), the brief, modest inversion has been reversed by the latest return of a dovish and accommodative central bank. This has led to yields on longer-dated bonds dropping more. Some forecasters call this a “bull inversion.”

Here’s the point: At no time during the Fed’s recent tightening cycle – when it raised rates nine times – or during the inversion, did front-end rates jump well above inflation, which would have made money expensive. Rather, a fundamental difference between the latest inversion and those of the past is that money remains inexpensive.

Today, the yield on three-month Treasury bills is just 30 basis points or so above core inflation. By contrast, prior to every recession since 1960 the three-month yield exceeded inflation by almost 200 basis points (2%). Bottom line: Money is considerably cheaper today than before prior inversions.

Does this mean we should conclude that a recession is unlikely over the next year or so? No, but if the very limited inversion we saw last month does not return, I think the odds of the yield curve causing a recession in the next year are next to zero.

That’s not to say we won’t have a recession in the next year, something else could cause it, but I don’t think it will be because the yield curve inverted ever so slightly in March. I continue to believe that concerns about a further yield curve inversion were what led the Fed to call off any more rate hikes this year and end its balance sheet reduction by September.

It might be prudent to look at other indicators as a more reliable barometer of economic health. Take corporate credit spreads, for example. The difference in the credit spread between short-dated and long-dated US corporate bonds is around 120 basis points, well above its average of 80 basis points since 2000.

So, the corporate yield curve did not invert or even come close. The spread has been expanding and is not suggesting a recession in the next year. That spread difference last inverted in March 2008, about five months before the financial crisis.

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Nor are equity markets signaling imminent recession – they’re near record highs. That says they are forecasting growth, not recession. The upside implied by option calls versus the downside implied by option puts on the S&P 500 Index are trading near average levels, while calls and puts for international equities are trading above average levels.

So, what should investors conclude from the temporary inversion of the three-month to 10-year part of the Treasury yield curve? While the tightness of the Treasury yield curve demands our attention, years of monetary easing have created a unique set of circumstances, making it tough in this case to conclude with any certainty that the recent short, modest inversion inevitably means a pending recession.

I’m beginning to think this recovery could last longer than most forecasters believe.