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The market's favorite indicator of economic recession has been issuing warnings for 222 consecutive trading days, the longest since 1980.

Longest Inverted Yield Curve in 43 Years

According to Dow Jones market data, the US Treasury yield curve has been inverted since July 5, 2022, with the difference between the 2-year and 10-year Treasury yields remaining positive.

This is the longest time since the 446 trading days ending May 1, 1980, that the yield curve has been inverted.

Normally, longer-term bonds have higher yields. However, this relationship may be broken when concerns about economic recession intensify or when the Federal Reserve raises interest rates significantly.

Few indicators have been proven to be as reliable warning signals of economic recession as the yield curve.

Campbell Harvey, a finance professor at Duke University and research director at asset management firm Research Affiliates, said that since the early 1960s, there has been an inverted yield curve before every US economic recession.

Severe Recession Ahead?

Harvey and others believe that the 3-month/10-year Treasury yield spread is the most reliable yield curve indicator, although it has only been inverted since the end of October.

"All the popular yield curve indicators are sounding the alarm for a recession," Harvey added.

He also pointed out that severe inversion has caused problems for the banking industry, contributing to the collapse of Silicon Valley Bank and other banks.

Historical data shows that the length of time the US Treasury yield curve is inverted is related to the duration of the subsequent recession. The longer the inversion, the more severe the recession is usually expected to be.