January 13, 2019

Each of the past five recessions has been preceded by an inversion of the yield curve. As a result, the recent flattening of the yield curve has fueled a great deal of discussion among economists and financial commentators. Historically, the slope of the yield curve has been measured as the difference between the 10-year bond yields and the 3-month T-bill yields. By this measure, the yield curve has not inverted and, but that has not stopped the pundits from getting ahead of the events and almost universally warning about an impending slowdown or recession. The yield curve has not inverted. Depending on how the curve inverts determines what it may portend for the economy. There are many potential catalysts that may reinforce of contravene a yield curve inversion. Based on these facts it may be premature to act on such concerns. Yet that does not mean we should not plan for the eventuality.

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