The sharp flattening of the 2-10yr U.S. Treasury Yield Curve to 15 basis points, and the inversion of the 3-5yr YC brought a possible inversion back into the spotlight. This would be a good time to review our “Yield Curve Mythbuster” piece given the spread is roughly the same as when we wrote it. The bottom line is that that even if it inverts, equities have historically responded with a median 21% gain to peak with a recession 19 months out (Figure 1).
Figure 1 – Historical performance of SPX and Economy after initial inversion of YC
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