Flattening yield curve may be signaling rising recession risk - Fed study

A spread between the short-term and the long-term borrowing costs could be signaling a heightened risk of a US recession, researchers at the San Francisco Federal Reserve Bank said in a study published on Monday.

As of writing, the gap between the 10-year treasury yield and the 2-year treasury yield stands at 19 basis points, the lowest level since 2007.

The spread has lost more than 75 basis points in the last six months, triggering fears the curve may invert soon.

It is worth noting that an inverted yield curve is widely considered a precursor to a recession.

Key quotes (Source: Reuters)

In light of the evidence on its predictive power for recessions, the recent evolution of the yield curve suggests that recession risk might be rising.

The flattening yield curve provides no sign of an impending recession” because long-term rates, though falling relative to short-term rates, remain above them.

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