Morgan Stanley IM: You’re In Good Shape for the Shape You Are In? Yield Curve vs. Recession

• The shape of the yield curve is a long-time coincident indicator with the shape of the economy, whether growing, slowing or recessionary.
• A year ago the slope of the U.S. Treasury 2-year/10-year curve inverted, where the yield on the 10-year fell below that of the 2-year.
• This was used as a signal for a recession 6, 9 or 12 months later, as an inversion of that yield curve is a often used as a lagging indicator.
• But a year since the inversion, the heated debate over what the yield curve is telling us about the future economy continues.
• I’d like to weigh in on the debate.

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