The power of the yield curve to predict future economic trends has been studied extensively. Economists and researches alike have documented its power to predict a looming economic recession. According to some, when the yield curve inverts, it signals a better than two-thirds chance that the economy will enter into a recession within a year and a 98% chance that it will do so in within two years.
When short-term interest rates spike above long-term interest rates, it signals that either monetary policy is attempting to address a problematic economic condition or that investors are growing weary of the future economy—either signaling trouble ahead.
On April 1 and April 4, 2022, interest rates on 2-year Treasurys were modestly higher than the yields on 10-year Treasurys, by 0.06% and 0.01%, respectively. The last time the yield curve inverted was in the third quarter of 2019.
