As you might remember, I’ve been concerned about the Treasury yield curve since March of 2019. Lately I’ve been gathering cash and tracking this macroeconomic indicator along with several other key indicators.
Way back in January of this year, the yield curve had a rather normal shape as you can see in this graph for January 2, 2019. Shorter term Treasury bills yielded less than longer term Treasury bonds.
Things started to get a bit weird in March. Investors started to lock in interest rate yields with longer term notes and bonds and the demand for those longer maturities raised the prices of those bonds and thus lowered interest rates. Shorter duration notes, such as the 1-year Treasury note, started to yield more than 10-year notes.
The animated chart below will show you the whole story of how this has played out so far in 2019. You can pause the chart animation and slide the timeline to any of the days when Treasuries traded in 2019. When the line turns red, the yield curve is inverted and the 1-year duration Treasury note yields more than the 10-year note. There are other definitions for an inverted yield curve, but it is the one I like to track.
Animated Yield Curve Interactive Chart (2019)
This final graph shows where we are on the yield curve as of yesterday. The yield curve is not inverted and has been like that since March. Several studies have indicated that this bond market signal often predicts a recession in 10 to 18 months, so it is possible that we might enter a recession somewhere between January and September 2020. Of course, this time things could be different so prepare for any possibility.