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2-10 Year Yield Inversion

The yield on the benchmark 10-year Treasury note was at 1.623%, below the 2-year yield at 1.634%.

The last inversion of this part of the yield curve was in December 2005, two years before a recession brought on by the financial crisis hit.

Data from Credit Suisse going back to 1978 shows:

  1. The last five 2-10 inversions have eventually led to recessions.
  2. A recession occurs, on average, 22 months following a 2-10 inversion.
  3. The S&P 500 is up, on average, 12% one year after a 2-10 inversion.
  4. It’s not until about 18 months after an inversion when the stock market usually turns and posts negative returns.

Going farther back in history, the yield curve’s track record gets a little more spotty. Post WWII, inversions have predicted seven of the last nine recessions, according to Sung Won Sohn, professor of economics at Loyola Marymount University and president of SS Economics.

“This is a track record any economist would be proud of,” said Sohn. “If the inversion started today, the economy could be in a recession within a year.”

Source:

CNBC, Thomas Franck, 2019-08-13, “Main Yield Curve Inverts as 2-Year tops 10-Year Rate, triggering recession Warning”

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