Macroeconomics
What is the Yield Curve Inversion and why is it historically predictive of recessions?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A yield curve inversion occurs when short-term Treasury yields exceed long-term yields, historically preceding many U.S. recessions because it reflects market expectations of slowing growth and future rate cuts.
How it works
Market participants often watch the 2-year/10-year Treasury spread for inversion as a recession-warning signal, though the lag between inversion and recession has varied from months to over a year historically.
An example
When the 2-year Treasury yield rose above the 10-year yield in past cycles, it preceded recessions within roughly 6 to 24 months, though timing varied significantly.
Risk & limitations
An inverted yield curve is a historical correlation, not a certainty, and some inversions have not been followed by recessions, so it should be one input among many.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.