The yield curve is inverted on March 23, 2019, I warned last year (Yiu, 2019a). “The reason why the whole world is so nervous about the inversion of the yield curve is because it predicted highly accurately for almost all the recent past recessions. After 6–18 months of an inversion of the yield curve, then recessions came.” The reason why an IYC can predict a recession is also discussed by Yiu (2019b)
Now, we are 18 months after the inversion, the Inverted Yield Curve (IYC) prophecy is correct again! Let’s review the IYC phenomenon first. Figure 1 shows the US Yield Curve (10-year Treasury Constant Maturity Minus 2-year Treasury Constant Maturity) from 1975 to 2020. The grey bars indicate the recession periods, and all of them are re-staged by an IYC phenomenon.
Figure 2 tabulated the recent 6 recessions of the US and the date of the IYC phenomenon. The current recession is a latecomer, as the previous 5 recessions are normally separated by less than a decade, but the current one did not come until 13 years after the previous one!
However, this latecomer is of very strong force. It does not only predict a recession in the US, but it also predicts a global recession of unprecedented strength. The Q2 GDP of the US records a -31.7% plummet. Figure 3 shows almost all RED INK results of the Q2 GDP of most of the developed countries, with unprecedented depths.
“This time is different” was a common response to the IYC prediction last year. Very few people believed that we would encounter such a catastrophic scale of global recession when the yield curve was inverted in 2019. The warnings were mostly ignored. Governments are mostly unprepared for a recession, even though we have repeatedly made warnings to them (Yiu, 2019c).
Yiu, C.Y. (2019a) Yield Curve is Inverted Today, Medium, Mar 23. https://medium.com/@ecyY/yield-curve-is-inverted-today-eb5e3c207749
Yiu, C.Y. (2019b) Why an Inverted Yield Curve can Predict a Recession? You are probably one of the contributors! Medium, Aug 20. https://medium.com/@ecyY/why-does-an-inverted-yield-curve-predict-a-recession-you-are-probably-one-of-the-contributors-c1d0168b3b7a
Yiu, C.Y. (2019c) An Update of my Forecast of Global Recession, Medium, Jun 6. https://medium.com/@ecyY/an-update-of-my-forecast-of-global-recession-4ba2e0e1cb65