An Inverted Yield Curve Predicted Twelve of the Last Five Recessions

For those who are not up on the term, longer term bonds typically pay more interest than shorter term ones, because they lock up your money for a long time.

When, for example, the 3-month US Treasury pays more than a 10-year treasure, the yield curve is said to be inverted.

This is significant because pretty much every US recession since the end of World War II has been preceded by an inverted yield curve, though, to be fair, a lot of not-recessions have been preceded by inverted yields as well.

Well, we are now seeing a pretty large inverted yield curve:

A widely watched bond market indicator sent its strongest recession warning in more than a decade on Wednesday, as the global growth outlook dimmed and questions swirled about the Federal Reserve’s commitment to cut interest rates in light of rising US-China trade tensions.

The yield on three-month US Treasury traded as much as 41.23 basis points above that on the benchmark 10-year government bond — the widest gap since March 2007. Such an inversion of the yield curve — in which short-term yields are higher than longer-term ones — has preceded every recession of the last half century.

My guess is that this time it is right, because it's been a long time, and our economic growth seems to be primarily an artifact of speculation and consumer debt, neither of which are sustainable.