According to the results of a Reuters poll, strategists are broadly expecting a yield curve inversion in US Treasuries within the next six months, much sooner than previously forecast just three months ago, and many are expecting a recession to follow closely on the heels of an inversion.
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Some maturities on the curve, notably yields on 2- to 5-year notes have already flipped. An inversion between 2- and 10-year yields is a closely watched signal as that has preceded almost all the American recessions of the past half century.
The U.S. economy, currently in its second-longest expansion on record, has been juiced late in the cycle by the Trump administration’s tax cuts, and is expected to slow sharply by the end of next year as that stimulus fades.
That is expected to leave a budget gap of over $1 trillion that will need to be funded by the issuance of more Treasuries, which currently consists mostly of shorter-term maturities. Combined with policy tightening, that would push yields on those bonds higher and speed up the inversion date.
“We are going to experience or will get closer to yield inversion by the middle of next year or maybe even a little bit earlier,” said Elwin de Groot, head of macro strategy at Rabobank.
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