Are Recessions Inevitable?

The utilization of treasury yield curves as a gauge of the economy’s health has been a long-standing practice. This is given their tendency to slope upward in a normal, healthy economy, with treasuries yielding more as maturities extend. In contrast, inversions, which occur when shortermaturity treasuries yield more than longer-dated ones, have historically been a reliable signal of an impending economic recession. One commonly followed spread by investors is the difference between the yields of 2-Year and 10-Year Treasuries. As of 7/26/2023, this spread has been inverted for an unprecedented 264 trade days, representing the most pronounced and prolonged inversion since 1980.

Even with the persistently inverted yield curve, the expected recession has yet to materialize. While historical patterns can offer valuable insights, they are not definitive predictions of the future. The current market behavior does not align with the expectation of a recession, as the S&P 500 Index has remarkably returned 21% since the yield curve inverted over a year ago, marking a resurgence into a bull market. It’s crucial to recognize that market dynamics can deviate from historical norms, and cautious interpretation is needed while navigating through this unique economic landscape.