Is the US yield curve signalling that a recession is on the way?

Pub. Date
18 April, 2019

This is a preview from the National Institute Economic Review, May 2019, no 248.

Inversions of the yield curve have a good track record of predicting recessions (see Estrella and Mishkin, 1998; Chinn and Kucko, 2015). The 10-year to 3-month spread between US Treasury yields became briefly negative between 22 and 28 March 2019, spurring debate about whether this was signalling a forthcoming recession. 

In this box, prepared by prepared NIESR Senior Economist Cyrille Lenoel, we discuss the signal provided by the flattening of the yield curve and the possibility of this resulting from a more permanent shift that goes beyond the current business cycle.


"The key issue is whether in current economic and financial conditions the yield spread is as informative as it used to be. It might be the case that asset purchases by the Federal Reserve have distorted the signal from the yield curve. (..) An inverted yield curve may signal a high risk of recession the following year as it has done successfully on several occasions in the past. But our forecast based on a wider range of economic data does not support this view".