Claudia Song

So the yield curve is simply a graph. Showing all of the different interest rates that you would get for all of the different kinds, different durations of U.S.

But I could also buy a much shorter treasury, a three-month treasury, for example. I get less interest on that right now. My money is locked up for less time. There's less risk. This makes sense.

But I could also buy a much shorter treasury, a three-month treasury, for example. I get less interest on that right now. My money is locked up for less time. There's less risk. This makes sense.

But I could also buy a much shorter treasury, a three-month treasury, for example. I get less interest on that right now. My money is locked up for less time. There's less risk. This makes sense.

However, there are strange moments when the shape of that relationship, when the literal shape of the yield curve graph flips completely upside down. And in that situation, investors are worried about the near term and about the economy deteriorating.

However, there are strange moments when the shape of that relationship, when the literal shape of the yield curve graph flips completely upside down. And in that situation, investors are worried about the near term and about the economy deteriorating.

However, there are strange moments when the shape of that relationship, when the literal shape of the yield curve graph flips completely upside down. And in that situation, investors are worried about the near term and about the economy deteriorating.

Is it that the wisdom of the crowds is smart and picks up on this? Is that basically what's happening here?

Is it that the wisdom of the crowds is smart and picks up on this? Is that basically what's happening here?

Is it that the wisdom of the crowds is smart and picks up on this? Is that basically what's happening here?

Like, over the last 50 years, whenever the yield curve inverted, a recession has followed within 18 months every single time. Except... Yeah, well, there's the recent exception a few years post-COVID where it did invert, but there was no recession. But other than that, other than the last one, it has worked every single time. And to be fair, it has never missed a recession.

Like, over the last 50 years, whenever the yield curve inverted, a recession has followed within 18 months every single time. Except... Yeah, well, there's the recent exception a few years post-COVID where it did invert, but there was no recession. But other than that, other than the last one, it has worked every single time. And to be fair, it has never missed a recession.

Like, over the last 50 years, whenever the yield curve inverted, a recession has followed within 18 months every single time. Except... Yeah, well, there's the recent exception a few years post-COVID where it did invert, but there was no recession. But other than that, other than the last one, it has worked every single time. And to be fair, it has never missed a recession.

And what that means is, well, this is where we get into probabilities. Very fun. Menzies has a model that compares basically all of those interest rates, the pairs of term spreads, and then it's able to spit out the odds that we will have a recession in the next year.

And what that means is, well, this is where we get into probabilities. Very fun. Menzies has a model that compares basically all of those interest rates, the pairs of term spreads, and then it's able to spit out the odds that we will have a recession in the next year.

And what that means is, well, this is where we get into probabilities. Very fun. Menzies has a model that compares basically all of those interest rates, the pairs of term spreads, and then it's able to spit out the odds that we will have a recession in the next year.

Yes. Okay. So that feels high. Is that high?

Yes. Okay. So that feels high. Is that high?

Yes. Okay. So that feels high. Is that high?

You know, the yield curve works as a predictor because the bond market is simply trillions of dollars of bets on the future of the U.S. economy. And historically, the throng of humans placing that flood of bets has been good at picking up on vibes of trouble ahead.