Two years of yield curve inversion in the U.S.

Historically, it has taken an average of 12 months from a U.S. yield curve inversion to recession

Sources: Statista, DWS Investment GmbH as of 6/25/24

Over the past five decades, it has taken an average of twelve months for a recession to occur after the first day of the inversion of the U.S. yield curve. As seen in the chart, these periods vary significantly, between 22 and just six months.^[1] Currently, however, although there are noticeable signs of weakness in several areas of the U.S. economy, the general trend does not seem weak enough to be the precursor to recession.

In our view, in fact, widely spread recession fears have acted to help prevent recession this time. Many companies seem to have proactively reduced their surpluses to survive the expected lean times ahead. As a result, they have been better able to help prevent an economic downturn. Growth sectors, in particular, have even been able to finance their expansion by using their well-filled balance sheets. Additionally, financing conditions in the U.S. have remained extremely favorable during the past two years. U.S. banks have also been able to continue offering attractive lending conditions despite the Federal Reserve’s (Fed) rate hikes.

We see the current inversion of the yield curve in the U.S. more as a sign that the old growth “boom times” will not return so quickly. But this does not mean future inversions should be ignored: next time the recession warning light could prove correct.