Historic Duration of Yield Curve Inversion Reaches Unprecedented 656 Days, Indicating Eerie Similarities to Pre-Stock Market Crash Patterns
Based on the latest data available, the U.S. Treasury yield curve, which measures the yields for two-year and ten-year bonds, has been inverted for a remarkable 656 consecutive days. This recent inversion joins the ranks of previous records set in 1929, 1974, and 2008, all of which were harbingers of substantial declines in the stock market. As market observers closely monitor this trend, speculation about the potential implications for the U.S. economy is rife.
As per data from ycharts.com, the inverted 2/10 Treasury yield curve, which has remained flipped since July 5, 2022, stands as a troubling indicator amid the so-called “official” statistics surrounding the U.S. economy. This inversion signifies that short-term government bond rates are surpassing those of long-term U.S. government bonds—a scenario that has persisted for a history-making 656 days.
The concept behind an inverted yield curve lies in higher interest rates offered by longer-term U.S. bonds, which serve as compensation for the increased risk associated with longer investment commitments. However, when short-term rates surpass long-term rates, resulting in an inverted yield curve, it serves as a signal of investor concern regarding the overall economic outlook of the country. The prolonged inversion of the yield curve has sparked discussions on online forums such as Reddit’s r/wallstreetbets, where participants have pointed out the crossing of the 500-day mark.
A Reddit post on the subject garnered 3,500 upvotes and ignited an engaging debate, with one user commenting, “We’ve only seen this 3 times in history: 2008, 1929, 1974. All 3 were [followed by a] 50% stock crash.” Speculation regarding the outcome of such a scenario ranged from an expectation of sharp increase in long-term bill rates to a plunge in short yields. Participants also discussed external factors such as China’s shift away from U.S. treasuries and the impact of potential rate cuts by the European Union.
Further amplifying the discussion surrounding the yield curve inversion, the social media account ‘Wall Street Silver’ highlighted the record duration of the inversion on its platform, reaching out to its 1.2 million followers. Discussions delved into historical yield patterns, with one user remarking, “In 1980, 10-year yields peaked at 15%. It is ‘only’ 4.6% now, lots of room to go up. The problem is the size of our debt.” Another user speculated that the outcome of the 2024 presidential election may hold resolution for the issue.
Throughout history, prolonged yield curve inversions have consistently preceded significant downturns in the U.S. market, including the Great Depression. The yield curve inverted prior to both the 1920-1921 recession and the 1929-1932 depression. The first prolonged inversion of 700 days preceded the 1929 stock market crash, while another lasted before the 1974 crash. Additionally, the 2008 economic crisis induced by the housing market collapse was preceded by another record-long inversion. With the current inversion having persisted for 656 days, many anticipate an impending substantial downturn.
As the yield curve continues to defy expectations, attention remains focused on the potential consequences for the U.S. economy. Share your insights and thoughts on this noteworthy 2/10 yield curve inversion in the comments section below.