When will the world’s largest economy fall into recession?

Right now, or sometime very soon, according to the purportedly infallible yield curve, whose Nostradamus-like reputation is on the line in 2023.

As BofA’s Michael Hartnett noted in the latest installment of his popular weekly “Flow Show” series, this is “the first time since 1981 [that] every US yield curve has been inverted for over six months.”

On average, looking back across 10 downturns, the 3m10s curve inverts six months prior to recession and the 2s10s 11 months prior.

If past is precedent, a downturn is coming as early as next month or as “late” as June. So, just in time for the US default party!

Over a century, the current depth of the 3m10s inversion has been exceeded “on just 125 days,” Hartnett observed, before reiterating that recessions in the US are always preceded by tighter monetary policy and curve inversions.

The table above shows you the history of inversions, as well as the length of the “early warning” period, so to speak.

Of course, it’s not the inversion you should fear, but rather the re-steepening. On that score, March witnessed one of the most acute 2s10s steepening episodes in history, but it was catalyzed by SVB’s failure, so it arguably needs validation.

As Hartnett wrote, “steepening of [the] 3m10s curve in the coming weeks would corroborate with ‘recession now.'”