YC2YR Yield Curve 2-10 Spread Daily Chart

The 2's to 10's yield curve spread is shown above. The 10-year and 2-year yields are converging on one another for one year running. The following yields are in play;

2-year yield 1.47%
5-year yield 1.82%
7-year yield 1.91%
10-year yield 1.93%
30-year yield 2.24%

The 7's and 10's spread threatened an inversion last week. Subtracting the 10-year from the 2-year, 1.93% minus 1.47% = 0.46% or 0.46 percentage points or 46 basis points. So the 2-10 spread still has a ways to go for inversion, another 45 or 46 bips.

The 2-10 spread is moving downward into the dark blue falling wedge pattern, which is a bullish pattern, in this case, it hints that the spread will bounce higher in the days ahead, up and out of the falling wedge, which would delay the road to inversion.

The last inversion was late summer early Fall 2019 and the pandemic did create recessionary numbers in 2020. The Fed's monetary stimulus bazooka and the Congressional fiscal stimulus cannon pushed the economy forward spending money the country does not have.

Yield curve inversions preceded every recession since 1955 except for one. Put that in your pipe and smoke it. This is why analysts pay attention to the yield curve.

Out of the last dozen Federal Reserve tightening cycles, 9 occur in sync with recessions. Hence, there is worry about the Fed raising rates this year. On average, a recession shows up 25 months after the first rate hike (after inversion). Money managers find solace in this model but it should not be relied upon due to the Federal Reserve's obscene money-printing for more than a decade. Throw the textbooks out and make up new rules going forward. Trouble (recession) will likely not take 2 years to show up at the doorstep; it may only take 2 months.

Based on the averages, and if the first Fed hike occurs in March 2022, next month, that means the US will be in recession by April 2024. Do not  plan for this outcome. Instead, plan for a recession starting this year.

Interestingly, the inversion occurred before the pandemic. Adding the average 25 months to that date, ignoring the pandemic drama, is October 2021 three months ago. According to the September 2019 inversion, the US is in the window for a recession now. Of course, other analysts will say that does not apply because of the pandemic. What do you think?

Another observation Keystone has made in the past is the hook pattern when the inversion, or, this is key, near-inversion, takes place. It is the up in rates that brings on recession and the 2-10 spread does not necessarily have to invert. The spread is down to 45 bips as shown above. If the Fed sends rates higher from here, it will likely not matter that the 2's-10's does not invert (down to zero). The reversal, the hook pattern higher, brings on the stock market drop. There are interesting and exciting times ahead. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 3/8/22: The 2-10 spread drops to 23 basis points only a whisker from inversion. Smell that? There's a slight whiff of recession in the air.