From Investing.com: 2024-09-13 04:45:00

The US yield curve, often a reliable indicator of a recession, has recently “uninverted.” However, a recent article questions its accuracy, citing instances where it failed to predict recessions since 1998, including the 2019 inversion that some argue was not a true failure due to the pandemic-induced recession of 2020.

The article mentions a yield curve inversion in 1998 that did not lead to a recession, highlighting the challenge of interpreting short-term fluctuations as recession signals. Using monthly data instead of daily spikes could provide a clearer picture of long-term trends and potential recession warnings.

Historical data shows that every inversion of the yield curve spread since the late-1960s has been followed by a recession. If the current inversion does not lead to a recession, it would be the first false positive in over 50 years. However, some argue that the 1990 recession did not have a preceding yield curve inversion, potentially a false negative.

Despite the historical trend, relying on yield curve signals for trading may not be effective, as the time between the signal and the actual recession varies greatly. The unpredictability of economic events and the length of time to see the outcome make it challenging to use yield curve signals for trading decisions.



Read more at Investing.com: Is Yield Curve Still a Reliable Recession Indicator?