Will History Repeat Itself…?

The flattening yield curve has been a hot topic of late as we have been bouncing between 45-50 basis points spread between the 2 and 10 year Treasury for most of April.  Jeffrey Gundlach, with DoubleLine Capital, made headlines when pronouncing if the curve flattens below fifty basis points it will most likely invert.  As we can see in the Bloomberg graph below, there have been nine times since the late seventies that the curve has dipped below 50 basis points and seven of those turned into an inversion.

Although history rarely repeats itself exactly there is a strong correlation between an inverted yield curve and a slowing economy or worst case a recession (noted on the graph with red shading).  It seems to be a prudent time to look at the details of the previous inversions.  In the chart below, you can see the start date, how long the inversion lasted and both the average and maximum inversion.  Maybe the Fed can guide us to a safe landing while raising rates and this will be the third time the curve has dipped below fifty and did not invert, but the slope of the curve is definitely worth watching.