What an Inverted Yield Curve Means for Recession Forecasts

The US Treasury yield curve is raising alarms among investors and economists again. That’s because it has been flipped upside down in an inversion, as it’s often called, for more than a year. Almost every recession since 1955 has been preceded by this graphical shape, though by mid-2023, the downturn had failed to materialize. That’s led to even more scrutiny of what the yield curve represents, and what it’s really telling us.

It’s a visual representation of the difference in the compensation investors will receive for choosing to buy shorter- versus longer-term debt. Most of the time, bond investors demand a higher return, or yield, for the greater uncertainty that comes with locking away their money for longer periods. So yield curves usually slope upward.