The Treasury yield curve is one of Wall Street’s favorite recession indicators, but it seems to be broken, write Sam Goldfarb and Peter Santilli for The Wall Street Journal.

Investors have long taken an anomaly known as an inverted yield curve, where yields on short-term Treasurys are higher than those of longer-term government debt, as a nearly definitive signal that an economic pullback is near. In the last eight downturns in the United States, this has proven to be true. There have been no glaring false alarms.

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However, the current run is threatening that streak.

The yield curve has reached a record stretch of being inverted — around 400 or even more trading sessions — and there are no signs of a major slowdown. The nation’s employers added 175,000 jobs last month, and it is expected that we will see economic growth pick up this quarter from earlier in the year.

If a recession does not happen soon, the yield curve’s status as a warning system could suffer a major blow. It would also be one of the most significant examples of how Wall Street’s long-standing assumptions about how markets and the economy function have been upended by the fallout from the pandemic. Even though the last few years have been anything but usual, investors would likely not be as worried the next time an inversion occurs.

“It’s not working,” said Ed Hyman, chairman of Evercore ISI. “So far, the economy is doing fine.”

He added that this still could be the case of a recession arriving a little late.

Fred Hubler, the CEO and Chief Wealth Strategist at Creative Capital Wealth Management Group in Chester Springs, thinks it’s a warning sign.

“The inverted yield curve is a flashing yellow traffic signal, not a red light,” he said. “With high inflation, high debt at all levels, and shaky consumer confidence being an economic uncertainty, there is still a real risk of a recession.”

Read more about the Treasury yield curve in The Wall Street Journal.

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