Inversion Before Recession

Charlotte Blackwood: If you were directly above him, how could you see him?
Lt Pete Mitchell: Because I was inverted.
--Top Gun

Interesting post by Liz Sonders showing yield curve inversions (defined here as 10 yr minus 3 month Treasury yield) and previous recessions back to 1970. Note that inversions precede recessions and often 'un-invert' before the recession begins.

Chart is 10y-3m YC w/ red signaling periods of inversion...table shows periods in past when YC uninverted (after having been inverted for at least as long this cycle’s) & continued to steepen...positive number = before recession; negative number = during recession pic.twitter.com/uFpyniJhor

— Liz Ann Sonders (@LizAnnSonders) October 14, 2019

Implication: if/when yield curve pulls out of its currently inverted phase, that does not mean that the coast is clear. Based on history, it is more likely to mean recession dead ahead.