The yield inversion predictor is 100% over the past 40 years with no false positives. The only problem with yield inversion is that it may be 2-years or 3-years early. (2005 yield inversion was followed up by recession in 2007).
Here is a graph of 10-year minus 2-year, a yield inversion is whenever the graph dips below 0%.
https://fred.stlouisfed.org/series/T10Y2Y
The yield inversion predictor is incredibly powerful.
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EDIT: Part of the reason for yield inversions to happen is that a large number of people are buying long-term bonds, because they think a bear market will exist. Its better to hold onto a 10-year bond through a recession, because short-term rates will drop during a recession.
We don't quite have a 10-year inversion yet, but we have a 7-year inversion. 5-year yields less than 1-year at the moment. So investors prefer making less money on a 5-year (to guarantee a stable interest rate), rather than 1-year.
That means a large number of people are predicting a recession.
Here is a graph of 10-year minus 2-year, a yield inversion is whenever the graph dips below 0%.
https://fred.stlouisfed.org/series/T10Y2Y
The yield inversion predictor is incredibly powerful.
----------
EDIT: Part of the reason for yield inversions to happen is that a large number of people are buying long-term bonds, because they think a bear market will exist. Its better to hold onto a 10-year bond through a recession, because short-term rates will drop during a recession.
We don't quite have a 10-year inversion yet, but we have a 7-year inversion. 5-year yields less than 1-year at the moment. So investors prefer making less money on a 5-year (to guarantee a stable interest rate), rather than 1-year.
That means a large number of people are predicting a recession.