Yield curve inversions: predicting recessions and investigating contemporary economic trends A comparative analysis of historical and recent yield curve inversions

Abstract

Comprehensive literature has emerged since the 1980s supporting the assumption that the yield curve is a reliable predictor of recessions by showing that (i) every U.S. recession after World War II followed after the yield curve inverted and (ii) the yield curve is a leading indicator since it calls recessions up to 18 months before they occur (Sabes & Sahuc, 2023). Currently, the U.S. economy isn’t showing any economic downturn contractions, although the 10- year yields have been consistently lower than two-year yields since the inversion in early July 2022.