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Global Macro Research:

Yield-curve inversion – an unreliable recession signal?

Global Macro Research: Yield-curve inversion – an unreliable recession signal?

13 October 2023 Global macro, Fixed income
  • Yield curves for major developed market government bonds have been materially inverted for over a year. Historically, yield-curve inversion has signalled a recession to come, as the market prices in future interest rate cuts from central banks – but there are few, if any, signs of a meaningful recession ahead.

  • Our analysis suggests there is a factor artificially suppressing the longer end of the yield curve: the expansion of central banks’ balance sheets following the global financial crisis.

  • Central banks’ balance-sheet reductions could remove this distorting effect over time, eventually helping restore the value of yield-curve inversion as a signal for recession.
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