The Great Devaluation

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On 02/25/2020 the 10-year U.S. Treasury minus the 1-year U.S. Treasury yield curve inverted (perhaps briefly), which means that the U.S. Treasury short-term rate was higher than the U.S. Treasury long-term rate. Typically, we define inversions as the spread between the 1-year and the 10-year, or the spread between the 2-year and the 10-year (called the 2-10).  An inversion is considered an indication of risk in the bond market, and have preceded recessions in 11 out of 11 of the past recessions, with 2 ‘soft landings’ in the last 70 years.
We had a prior inversion in early 2019, the Fed reacted with rate cuts, possibly averting or delaying a recession. The chart below, from the Fed, illustrates yield-curve inversions (with a red arrow) and the following recession (grey line):


FRED 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
 FEDERAL RESERVE BANK OF ST. LOUIS

In the past, the inversions tended to precede recessions by 12-18 months. It might be noted that in most prior inversions, we had a ‘double tap’, where the yield curve inverted two or three times before the recession. See 1997-2001 below and 2005-2008 below:
Today In: Money
1997-2001:


10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
 FEDERAL RESERVE BANK OF ST. LOUIS






2005-2008:


10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
 FEDERAL RESERVE BANK OF ST. LOUIS   

https://www.forbes.com/sites/leonlabrecq...62726026e8

(See the link for the graphs).