The yield curve for US government bonds has been a reliable indicator for predicting the arrival of an economic recession for at least 60 years. As soon as its shape begins to invert, we are on the verge of trouble.
The yield curve
The inverted shape of the yield curve is often a signal that investors are more worried about the near future than what will happen in a few years. While US government bonds normally carry a higher rate of interest at longer maturities, short-term yields are rising at a time of increasing market uncertainty. Once short-term yields get above long-term yields, the yield curve is inverted.
The increase of recession
The yield curve for US government bonds is approaching this state. “I think a recession could very well come, or worse,” investor Carl Icahn told CNBC. According to Moody’s Analytics Chief Economist Mark Zandi, there is at least a 1 in 3 chance that the US economy will enter a recession in the next 12 months. “The harder the Fed puts the brakes on, the more likely a recession will increase,” he told CNN.