Yield Curve Inversion
When short-dated Treasury yields exceed long-dated yields — historically the most reliable leading indicator of US recession.
Definition
An inverted yield curve means investors expect short rates to fall, usually because they expect economic weakness severe enough to force the Fed to cut. The 2s10s and 3m10y are the most-watched measures.
Inversion has preceded every US recession since 1955, with a lead time of 6 to 24 months.
Public research record
Research framework · page evidenceCompleted application: Yield Curve Inversion
Inversion is a binary signal that shifts allocator behavior — it triggers credit derisking, increased cash allocations, and lower equity multiples even before growth deteriorates.
| Type | Claim | Scope |
|---|---|---|
| Release fact | When short-dated Treasury yields exceed long-dated yields — historically the most reliable leading indicator of US recession. | Rates |
| Release fact | July 2022: 2s10s inverted. The S&P 500 troughed in October 2022 and recovered, but credit spreads widened in 2023 alongside regional bank stress — a partial vindication. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
Inversion is a binary signal that shifts allocator behavior — it triggers credit derisking, increased cash allocations, and lower equity multiples even before growth deteriorates.
Worked example
July 2022: 2s10s inverted. The S&P 500 troughed in October 2022 and recovered, but credit spreads widened in 2023 alongside regional bank stress — a partial vindication.