In the month of October 2024, the yield curve has significantly flattened.  It has been mostly inverted for all of 2023 and 2024, which is a very long time.  This means that short-term yields have been higher than long-term yields.

It has almost completely flattened now.  Across the curve, the lowest yield is 4.14% (the 3-year and 5-year) as I write this.  The highest yield is 4.87% (1-month yield).

So, it is still very slightly inverted in some spots, but close to flat.  The long yields have gone up.  From October 1 to October 30, the 30-year yield has risen from 4.08% to 4.49%.

The short yields have only fallen slightly.  But the Fed is expected to lower its target rate once or twice more before the end of the calendar year.  This should push short-term yields down more.

The Significance

Why is this so important?  It is because an inverted yield curve predicts a recession.  But the recession doesn’t hit or become evident until the yield curve flips back to “normal”.  In other words, the short-term yields should fall below the long-term yields before the worst of the recession hits.

This means that the new president in January 2025 may have a big economic disaster thrown on their lap.

The yield curve was severely inverted before, and it lasted an enormously long time.  If the length and severity of the inversion is any indication of the severity of the recession, then we are in for a wild ride ahead.