Double Dip?

Many investors are convinced a double-dip recession is inevitable. Not me. One of the most reliable forecasters of recessions is the yield curve. A simple way to measure the steepness of the yield curve is to calculate the difference between the 10-year Treasury note and 3-month Treasury bill. Since 1955, there have been 9 recessions (per NBER), and every one of them saw the 10yr-3mo spread dip below 50 basis points – and most below 0 meaning the yield curve inverted.

The following chart from January 1955 to June 2010 clearly illustrates this point. Recessions are marked by vertical grey bars and the 10yr-3mo spread is the green line. You will notice that each grey bar (recession) is preceded by the green line (spread) dipping near or below the 0.00 level (below 0 = inverted yield curve). 


Data Source: St. Louis Fed FRED

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