Recessions occur as a result of myriad factors impacting the greater economy, including current monetary and fiscal initiatives, price inflation, supply chain bottlenecks, job creation, wage growth, consumer spending, discretionary income, consumer confidence-in short, the overall health of the economy determines the breadth, scope, and occurrence of a recession. In the last month alone, the highly interest rate sensitive 2-year treasury note posted a YTD high of 5.05% on March 8 and a YTD low of 3.76% on March 24-in a two-week span. Nor is the volatility of bond yields in the greater economy a singular portent of recession. While an inverted yield curve appears tied to recessions, it is important to remember that an inverted yield curve is less a forecasting tool for a recession than an indicator of future economic activity, not least of which the ability of both companies and government to meet existing and future debt obligations over time. While the lapse of time and severity of yield curve inversions differ with each example, the inversions, indeed, preceded each of the US recessionary periods. Figure 1, above, sketches out all of the US recessions since 1970. The 10-year/2-year spread went negative in the first week of April 2022 and has largely remained so since July of last year.
Confused? What About the Yield Curve?įigure 1: Ten/Two Year Yield Curve Spreadġ0-year/2-year Spread (Federal Reserve Bank of Chicago)
The consensus narrative among economists and market analysts around the fate of growth in the greater economy over the near term continues to bounce pell-mell from one extreme to the other-and back again-with uncanny regularity.
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