Skip to content

This Economic Indicator Says A Recession Could Be Imminent. Here’s What Happens Next

One of the top recession indicators flashed a warning signal about 15 months ago, and now, it’s getting louder and brighter.

Two-year Treasury bonds started to yield more than 10-year T-notes last summer in what’s called a yield-curve inversion. In normal times, the yield curve slopes up and to the right. That is, longer-dated bonds offer a higher yield than shorter-dated bonds. That gives investors a greater reward for holding their investment longer.

However, with expectations for the Federal Reserve to tighten the money supply and make it harder to borrow, investors moved money away from short-term bonds to long-term bonds. That led to an inverted yield curve, which signals investors’ pessimism regarding the near-term economic outlook. Indeed, an inverted yield curve has preceded each recession since World War II.

Now, the difference in Treasury bond yields is flashing a signal that a recession could be imminent.

This post originally appeared at The Motley Fool.