Understanding the Yield Curve: How It Signals a Recession
An inversion in the bond yield curve is often cited as a red flag for an upcoming recession. This happens when short-term bonds offer higher returns than long-term ones, flipping the norm and signaling market concern. The 10-year and 2-year Treasury Notes, reliable recession predictors, have been inverted for over a year. However, a recession usually kicks in when the yield curve goes back to a more typical, steeper shape. While not a guaranteed recession indicator, an inverting and then steepening yield curve hints that we're entering conditions similar to those before past recessions.