Current Recession Risk According to the Yield Curve

Bauer, Michael D.; Mertens, Thomas M.

Journal Article

Current Recession Risk According to the Yield Curve

Abstract: The slope of the Treasury yield curve is a popular recession predictor with an excellent track record. The two most common alternative measures of the slope typically move together but have diverged recently, making the resulting recession signals unclear. Economic arguments and empirical evidence, including its more accurate predictions, favor the difference between 10-year and 3-month Treasury securities. Recession probabilities for the next year derived from this spread so far remain modest.

Keywords: yield curves; covid19; economic forecasting; Treasury securities; recession risk;