Unusual Economic Conditions Keep the Yield Curve Flat

It has been almost four weeks since the inversion of the 3-month/10-year US Treasury yield curve, and the commotion is just now finally beginning to fade.

In some respects, the attention this event generated is understandable—inversions have preceded every US recession for the past 60 years. When the normal relationship between yields and maturities inverts, and short-term bonds yield more than longer-dated bonds, it can be a powerful warning that there’s danger ahead for the economy.

However, we do not believe this is the case for the inversion that occurred on March 19. With the US economy continuing to show moderate growth, and inflation pressures contained, we question whether this mild and short-lived inversion provides a reliable signal that a recession is on the way.

This Yield Curve is Essentially Flat

As a predictor of future economic recessions, the signal an inverted yield curve is sending grows stronger and more reliable along with increases in its magnitude, steepness and duration. The inversion itself is far less meaningful.

By this measure, the inversion that began on March 19 and ended five days later was hardly much of an inversion at all. At its steepest point, 3-month Treasury yields exceeded 10-year yields by just 6.5 basis points. The table below shows how these numbers compare to the inversions that signaled the 2007 and 2001 recessions.


Maximum Gap


March 2019

6.5 basis points

6 days

Pre-2007 Recession

62 basis points

1+ year

Pre-2001 Recession

80 basis points

6 months