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Econ Blog
Every yield-curve inversion since 1980 preceded a recession. The 2022-24 inversion broke the pattern. Three explanations are debated; only the next decade tells which is right.
The 10-year Treasury yield minus the 2-year Treasury yield ("the spread" or "the curve") is one of the most-watched macroeconomic signals. When it inverts (2-year yields more than 10-year), recession historically follows within 6-18 months. The 2022-2024 inversion broke the streak.
Jul 2022 to Dec 2024
Pre-1980 record
In this cycle
The chart crosses zero into negative territory mid-2022, troughs near -1% in mid-2023, and re-emerges above zero in late 2024. Whether the inversion 'worked' as a recession signal in this cycle is the most-debated question of the 2020s recovery.
Since 1980, every recession has been preceded by a 10Y-2Y inversion:
Five for five if you count 2020, four for four if you don't. That's a near-perfect signal, until 2022-24.
The 10Y-2Y spread inverted in July 2022 and stayed negative through December 2024: 19 months, the longest run since the 1970s. By every historical model, a recession should have followed by mid-2024. None did. GDP grew 2.5% in 2023 and 2.8% in 2024.
Three explanations are debated:
Each has supporters. None has been proven.
For the 2-year-ahead investor, the question becomes: how much weight to put on yield-curve inversions in a recession-probability model?
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Unemployment behavior in the 2001 dot-com bust, the 2008 crisis, and the 2020 pandemic shock looked nothing alike, and neither did the recoveries.