In late March, part of the U.S. Treasury yield curve “inverted” for the first time since 2007. Specifically, the yield on the 3-month Treasury note rose above the yield on the 10-year Treasury bond. Over the last several months, there has been a lot of angst about the potential risk of an inversion and what it might signal about the health of the economy. Historically, yield curve inversions have been a fairly reliable predictor of economic slowdowns. In fact, every recession since 1957 has been preceded by an inverted curve. Yet, there have been multiple instances where the curve has inverted without a recession. We believe the current inversion will prove to be another exception to the rule.
In our view, the economy remains in decent shape and the risk of an imminent recession is still relatively low as technical factors have largely contributed to the recent inversion. The attached Market Brief provides further insight from our Investment Team.