...But Yield Curve Inversion

Every recession has been preceded by a yield curve inversion, but not every yield curve inversion has led to a recession. That is a key point to remember. A lot of people seem to get this confused. Of course, we know correlation is not causation, and if we look at the data going back to 1940 we can see that there have been 10 examples of yield curve inversion. Of which, 7 resulted in a recession within 2 years. 

The recessions that were preceded by yield curve inversions were:

  • 1960-1961

  • 1969-1970

  • 1973-1975

  • 1980

  • 1981-1982

  • 1990-1991

  • 2000-2001

  • 2007-2009

  • 2020

The 3 yield curve inversions that did not result in a recession were:

  • 1949

  • 1955

  • 1989

This is only a 70% probability which is far from a guarantee. Clearly yield curve inversion is not a perfect predictor of recessions. However, it has been a fairly reliable indicator in the past. So, while it is not possible to say for sure whether a recession will occur from the recent inversion of 2022, the yield curve is a sign that the economy is facing a unique situation and is at risk of a possible recession.


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