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How The Yield Curve Predicted Every Recession For The Past 50 Years

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The yield curve was once just a wonky graph for academics and policymakers. But in recent years it has become a way to forecast looming recessions. The curve has helped predict every recession over the past 50 years. That means the curve accurately predicted even largely unforeseen downturns like the dot-com bubble of 2001 and the Great Recession in 2007. As a result, news of yield curve inversions can now send markets tumbling. Policymakers keep a close eye on even small changes in the curve’s composition. So how did this simple graph showing U.S. Treasury bond interest rates grow into one of the most reliable recession indicators we have? And what does a yield curve inversion really mean? » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC » Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision » Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more. Connect with CNBC News Online Get the latest news: https://www.cnbc.com/ Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC #CNBC How The Yield Curve Predicted Every Recession For The Past 50 Years
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Text Comments (648)
S-indet (18 hours ago)
Yeet Curve
Rs123 (20 hours ago)
never ever i have seen such cheap interest rates.
Silver Skateboarder (1 day ago)
selling to the chaicomms and greedy corp this is one reason just one...
Dan (1 day ago)
LMAO that’s not what the Heisenberg uncertainty principle is. The Heisenberg uncertainty principle is that there’s a limit to the precision to which we can measure subatomic particles
The Ethicist Philosophy Show (1 day ago)
Hayek: "Blame low interest rates." Keynes: "Nah, it's the animal spirits."
Eugen (6 hours ago)
The Ethicist Philosophy Show haha
Carynn Tey (2 days ago)
WSJ does a much better job in a more concise clip: https://youtu.be/bItazfbSptI
Google Plex (2 days ago)
the rich are stealing again smh say goodbye to your 401k and savings
R R (2 days ago)
Don’t raise the rates Don’t raise the taxes Let the government pay for this and that Where does money come from to keep the government running?
The Watch Show (2 days ago)
Fed private bank evil. Truth.
The Watch Show (2 days ago)
Recessions are nice and healthy. Good for reality check.
Top Dawg (2 days ago)
I'm 18 so I'm too young and lazy to care or watch this video.
Iron Ballz (3 days ago)
Like the interests rates, when they are monitored this closely and carefully every day, the market automatically compensated and readjust and self-correct way ahead of time. Interest rates have absolutely NO PREDICTIVE POWER in our computerized internet age where there is NO PRIVILEGED INFORMATION on macroeconomics. However, only the top 1% has access to INSIDE TRADING stock information because of our connections in life.
Nigo Era (3 days ago)
50 years isnt a long time lol
Dave Hammond (3 days ago)
Feds make the call either way - couldn't this just be another version of a self fulfilling prophesy - recessions get triggered a year later as consumer confidence take the messangin onboard and slow spending and investment which just fuels the recession.
Alexis Aragones (3 days ago)
"Is it going to be a full proof indicator? Only time will tell us that." Ok, yeah, let's all wait the recession to hit even bigger than 2007/08 to make sure its a good indicator. Recession is coming big time, and it's gonna hit bigger than the previous one. Even Michael Burry - the person that started shorting subprime before it blew off - is warning about it. The question is: where to invest before recession hits.
Paul Rizzo (3 days ago)
You see keyword there traders expect to get paid higher yields but the fed will buy that debt for any yield that comes along and tada like magic yield curve no longer inverted! Everything is fine guys just buy away.....
Martin Jimenez (3 days ago)
"Central banking is Communism for money"-Ron Paul, 1976 lol hope live another 50 years to find out...
Mohamed Imadh (3 days ago)
I know the video was to help us understand the concept. But I think I am more confused about the economy after watching this video....
Teolulz (3 days ago)
the uncertainty principle says the more you watch cnbc the more...
Medusa Skull (3 days ago)
The more videos you see talking about inverted yield curve, recession, depression, fed interest rates, the more likely it is a good time to buy. They are just scaring you to get out. It's bad when they all saying everything look good time to buy. That's when I pull out.
Benyameen Yitzhak (3 days ago)
The past 50 years of economic recessions. I wonder what happened 50 years ago? Didn't Nixon take the US dollar OFF the gold standard 50 years ago?
lazo marsh (3 days ago)
Wow, could this be any more boring??
XFLEUR (4 days ago)
*I think CNBC should look up the definition of “analogy” and how they’re used. Because that traffic analogy has to be the worst of any I’ve ever heard.*
Dale Saylors (4 days ago)
Democrats want another recession in order to gain the White House. Don’t care about the other crap-stop typing.
vgernyc (4 days ago)
I'm sorry the 10yr vs 2yr and 10yr vs 3month have been a downward trend since 2014 and 2013 respectively. In addition, the 10yr vs 2yr have been going down with an oddly rhythmic pattern from Dec 31, 2013 until Sept 2019 when it inverted. The tariff dispute with China or even Trump himself don't seem to be factors. https://fred.stlouisfed.org/series/T10Y2Y
michaellolu (4 days ago)
I was about to comment on the idiot who used Heisenberg's uncertainty principle to explain economics. But then I looked in the comments and realized there was no need.
Alex Roman (4 days ago)
This traffic analogy makes no sense at all
netsaosa (4 days ago)
ok major news outlet i will sell all my assets now
Armand Ahishakiye (4 days ago)
I thought the uncertainty principle was that you can't know the position AND velocity of a particle??? 😫 these are the people running our economy
Jer F (4 days ago)
The Astro-physist hypothetical explanation of the economy. 😅
bala bharathy (4 days ago)
Don't spend too much money on corporates like Amazon or other less taxpayers or contributors to govt. Recession is inevitable. Corporate capitalist investor's psychology trend analysis. India may crash in 2020 because middle class debt is skyhigh in India.
Kate100294764 (4 days ago)
Did HUAWEI rip off your logo?
Prashun 'PC' Chakraborty (4 days ago)
I checked today, 3rd December 2019 the Yield Curve is not negative, any comments on this fellas?
paul Smith (4 days ago)
The Fed has been artificially propping up the stock market with free money. It is different this time for that reason.
Swidhelm (4 days ago)
Growth is weak when household debt is high. Houses tighten their belts and worry about paying down debt, not spending. Growth slows, and if it slows too much you get a retraction. A ripple effect that shrinks the economy.
Michael Gabriel (4 days ago)
Please add subtitle
Amy Ee (4 days ago)
when is the next recession? still waiting
JKL (4 days ago)
This is old news
Pavel Dimov (4 days ago)
And tell me now this is happening on its own but not because of those billionaires and media working together to do it...and this is money for them...and we all know who owns all the media.. exactly same billionaires that profit from all those recessions... assholes PS. Btw that traffic example was the dumbest thing ever seen in a long time..
DougE (4 days ago)
As if Trump had any idea what the yield curve is....😂🤣 Guessing he struggles with the term 'yield' in this context
Remembered (4 days ago)
This is fascinating.
Jonathan Q (4 days ago)
The issue is and will always be the federal reserve private bank
xtoad9 (4 days ago)
I have been alive for nearly two decades and from my experience, a republican white house will = a recession. Welcome to the 21st century player one.
Keith Woodhouse (4 days ago)
Godamn banks and government driving the economy into the ground again.
SkN (4 days ago)
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford
Guardian (5 days ago)
These people are still hoping for a recession so badly that’s it’s disgusting that they’ll regret it lol. Hope they get karma soon.
Krishna Upganlawar (5 days ago)
@CNBC, stop talking about recession
Jay M (5 days ago)
Regardless of recession or depression, stocks will vault higher and higher as governments compete to out print each other with funny money out the wazoo.
Alay Shah (5 days ago)
Campbell's law is an adage developed by Donald T. Campbell, a psychologist and social scientist who often wrote about research methodology, which states: "The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."[1] https://en.m.wikipedia.org/wiki/Campbell%27s_law
Khoa Bui (5 days ago)
terrible video why? Negative rates in EU and JP are causing us bonds rates to skew. Because no one in their right mind would pay someone to borrow their money so instead buying EU bonds they buy US treasuries. The higher demand for Us causes treasuries prices to go up. If the price goes up but interest rate is flat then yield goes down.
encinobalboa (5 days ago)
The yield curve is not inverted anymore.
vanessa raices (5 days ago)
This is God laws and U.S. and china are giong by?😙 wake up? Humans souls they depends own it😐
Monique Harrison (5 days ago)
Sorry off topic, 9:08 that is one hell of a 🌞 set or rise kinda of hard to tell these days
Jackie L (5 days ago)
Vox’s was about 7 minutes shorter but they explained the subject better.
Name NotAvailable (5 days ago)
Heisenberg principal? You are talking sh*t.
Joe Sterling (5 days ago)
So, a self-fulfilling prophecy, now that the yield curve is a known predictor, and now that trading is computer-based and impersonal.
Hastur of Carcosa (5 days ago)
The Federal Reserve finds itself in a self fulfilling paradox of it's own making. In an attempt to short circuit cyclical market forces for one that only goes 'up' it manufactures gross imbalances. The economic ecology is continually attempting to correct them by eroding their corrective activities. At a given point, Central Banks are forced to intervene again and again with more frequency in tighter time scales until they are at last defeated by 'balance.' At some point we are all subjects of gravity. Central Banks would have people believe they are in control, but that is an egotistical fantasy. Don't fight gravity,..accept it. Opportunities are meant to come and go like tides. Placing a REPO bubble of liquidity around banks to insulate them from the nature of debt obligation is just another Keynsian fantasy that gravity will be forced to correct. The bigger the bubble,..the bigger the burst. Don't get caught in the blast radius. Even the central banks are buying gold. That should tell you something.
Han Infinity (5 days ago)
Due to inflation these interest rates are laughable.
chuyen pham (5 days ago)
Bud Wzr (5 days ago)
Trump bought up all the corporations. The little guy is gonna end up paying.
Ras Kalév (5 days ago)
Feminist are really gonna have to survive without a Man, the food he stocks the grocery with, the water he gathers, the medicine he invented, the gasoline we created, cars we invented, etc all going bye bye no more fake up, malls, social degrees, hair hats, abortion child murders, female supremacy etc. Biblical prophesy gonna put you Feminazis(99% women).
Aurobindo Ghosh (5 days ago)
how do you lend money to federal government when it is federal governmemt that prints the money?
Tim Moraru (5 days ago)
The FED is not owned by the federal government, it's privately owned by a collection of banks
scy1192 (5 days ago)
7:18 "We just find it very hard to see how global growth can be this weak and the US can be this one island of, essentially, prosperity" I have one little idea how it may be the case :^)
Terreflare (5 days ago)
Low interest rates causes inflation and cheaper federal loans which booms economic growth and the prospects of long term government bonds will look far worse than stock investments causing such an inversion. This is dangerous if it continues for too long and people start to notice the inflation and loose confidence or if the money is being borrowed to invest in bubble markets such as the last recession with the housing market looking unrealistically more profitable, but it is not necessarily a bad sign today unless you believe that modern stocks are overpriced and ready to collapse. It could just be a sign that our economy is so great right now that a company will give you more for your money than the government. I do think it is worth pointing out that left wing media companies have been a crashing bubble lately with thousands of lost jobs despite their important work of drumming up hysteria about the record setting economy possibly crashing in hopes that they might cause such an event to hurt the current administration. I find it absolutely appalling they try to hurt the national economy and all of us like this for political reasons. Recessions are not caused by this yield curve, it is caused by bubbles and lost confidence in the economy. Perhaps bubbles tend to form because of these inversions because if bonds look bad and federal money is cheap it can cause a shortage of good looking investments and more opportunities for a shady company to start offering bad investments to hoards of hungry lenders. I am not saying we can't be in a growing bubble, but they should investigate that if they think we are and stop pointing to basic evidence that people are choosing to invest in stocks rather than bonds. Booming growth also increases tax yields decreasing how much the government will need to borrow in bonds and increasing the numbers of wealthy capable of buying bonds hurting bond prospects as well so if you are following my logic you can see it is complicated, lots can cause these inversions that may or may not lead to bubbles and recession, and without evidence of a bubble this story only needlessly hurts confidence in the economy which is a possible cause of recession if you have been paying attention. This is what that guy's strange Heisenburg analogy was about, if the inverted yield curve can more easily cause bubbles to form if shady lenders rise to replace bonds and people notice a relationship in past trends they might lose confidence in the economy when they see it and cause an artificial recession without a bubble ever forming creating a self fulfilling prophecy that might have been avoided if it was not observed and no bubble formed. It is not quite the same as the physics concept, but similar in a way. The only sound economic advice anyone can say with certainty is that investing in left wing news media right now is a very bad idea, if they are failing so badly when the economy is booming just imagine how they will fair if they succeed in causing a decline.
Bichr Salhi (5 days ago)
I feel like the media uses these complicated concepts on purpose to control people's behaviors to suit their end goals.
Aldo (5 days ago)
my D curve predicts the future
Pranav Pednekar (5 days ago)
For those who still don't understand, let me try: Before we begin, you must understand that the whole financial machinery works on FAITH. People need to have faith in the market. Now that we have that out of the way, the yield curve is simply a graph of interest rates on treasury bonds over different periods of time. A healthy yield curve must have a lower interest rate in the short term than the long term. SIDENOTE ON INTEREST RATES: As investment goes up, interest rates go down. This is because if more people are buying something then there is no need to add an incentive (i.e. interest). Basically, if more people want the stuff I'm selling, I get to decide the discount I offer. However, if nobody is buying my stuff then I have to give a higher discount. Now, think of the government as the seller, treasury bonds as the product, interest rate as the discount and the investors as the customers. Now that we understand interest, a healthy yield curve will have a low interest on shorter periods and higher interest on longer periods. This means that the investors have faith in the government and are willing to lend them money despite getting a lower interest payment. An inverted yield curve however means that the investors have lost faith in the government and are parking their money for long term investments because they are expecting a recession. Now remember the side note we read earlier on interest. Because people are parking their money for the long term, the long term interest rate has gone down and because nobody is investing in the short term, the interest rate has gone up. You've now gotten yourself an inverted yield curve. WHY IS THIS SIGNIFICANT? because in the beginning we said that the whole financial machinery works on trust. You can crunch numbers all you want but because investors are emotional and paranoid people nobody has ever been able to successfully predict the market with a 100% accuracy. So, investors are not lending money to the government in the short term which means they government does not have money to keep the welfare programs it has got going. This means that we have a huge problem on our hands i.e. a financial crisis
Yannick (5 days ago)
Maybe it's a self fulfilling prophecy
Mickiii P (5 days ago)
The Jew curve
de0509 (5 days ago)
7:16 that lade is woke
Windsong1 wong (5 days ago)
Let me give a tip to anyone....I am a very successful stock and property investor. The US stock mart is very high now but is going higher becauseTrump had bullied Powell into giving him THREE rate cuts ....now Trump is going to bully China into buying a lot of stuffs from USA . The net effect is that there will be a euphoria in the stock mart until nov 2020. This euphoria is designed to help Trump get elected. It is a done deal ..whether you like it or not. Traditionally, an incumbent always get elected in a good economy. After that ....ALL HELL WILL BREAK LOOSE. Please..... sell by April 2020. Then you are safe ....AND STAY THE HELL OUT OF THE STOCK MARKET..... Forget all the dumb dumb that tell you to ride the stock mart in the long term even though it is super high.....just follow Warren Buffet .....he thinks the stock mart is high now ...( but getting higher ) . HAPPY INVESTING . Why sell by April 2020? .... risk get higher after that.....remember Rule no 1.....don’t lose money . Rule no 2.....never forget rule no 1.
Sammy Sam (5 days ago)
It's a big club and we ain't in it George Carlin Get ready, cause it hasn't been wrong before and you already know who ain't getting bailed put
vsboy 25 (5 days ago)
Under trump command America will always be rich
Gwant (5 days ago)
you guys are really pushing for that recession aren't ya
PIERRE (5 days ago)
LOL we hav a lot of “experts” in these comments. What will be funny is y’all continue to blow y’all money and if the recession happens y’all screwed LOL
Palatine of facts (5 days ago)
this video is like a traffic analogy, its a trainwreck, watching this video makes me Heisenberg meaning i can cook meth
Ronnie Cammarata (5 days ago)
If yang doesn’t explain it I don’t understand
Leon Degrelle (5 days ago)
You are already in a great depression and your people are in a medically induced coma so as your politicians and economists! US economic bubble is about to burst if not this month the next year for sure if the trade/war continues. Its been almost a year where nobody buys your bonds (Chinese Japanese and Russians actually trying to get rid even the last dollar) but FED under Trump's order printing hundred of billions each week to keep your stock alive and prevent the crash. *You are the Zimbabwe of the West*
Leon Degrelle (5 days ago)
@Sailor No it won't only those who stockpiling US debt like huge European companies mainly in UK and Germany.
Sailor (5 days ago)
You do realize that if the US Dollar hyperinflates, the rest of the world will suffer a great deal along with the US, won't it? The whole world's gonna go Zimbabwe.
Nobody like me (5 days ago)
Wait so cant someone really high up just change the number and dictate the markets? Or somehow influence the markets with their billions of dollars? I dont understand.
David Fagundes Junior (5 days ago)
Our generation looks more at the yield curve than the eyes of our children, wives, and friends. We are blind, fleeing from real problems, and seeking answers in the wrong places. Try to follow the curve of the solar radiation spectro, ..this determines the future of our planet. Embrace a tree. God bless yo
being human (5 days ago)
Cnbc trying very hard for recession but it's not coming 😂😂😂😂
Turkey Bowlwinkle (5 days ago)
"This time it's different" - famous last words
Bobby (4 days ago)
lol every gawdamn time
Николай Помещенко (5 days ago)
Maybe, iam stupid, i dont see problem. Talking about recession starts a long time before yield curve. Sp500 so high, China trade war... Investors expected recession and decided to make money on lower bond yields 🤔
Josh V (5 days ago)
Bear markets are unpredictable
Francisco Carbone (5 days ago)
But how does a yield curve affect Markets overall in the longrun?
Financial Shinanigans (5 days ago)
So yet again, no one is certain when a recession will happen...
Authentic Living (5 days ago)
History has a tendency to repeat it self. Lets be on the winning side of it.
YK L (5 days ago)
Half of the economists will be right!!! There are people betting on both side
Jon Braun (5 days ago)
Mastodon1976 (5 days ago)
Trump voters will refuse to believe this.
paul c (5 days ago)
To the Indian lady at 7:20. The answer is obvious, the trump effect is real, and his actions are positive toward the markets.
rjcass33 (5 days ago)
WTF is up with the trucks in the traffic animation? The trailers have two sets of axels.
akshay jayakumar (5 days ago)
I don't think Heisenberg meant his principle for real world stuff.
Investing Education (5 days ago)
Not impresed with the yield curve as a predictor. it seems more of a sentiment metric to me
Total Control 871 (5 days ago)
I might just be a poor ex homeless man who never made higher than a $10 an hour security guard wage. But what I can tell you is what's happening is a result of rich people foolishly thinking THEY, and not poor people like me, pay America's bills. America was built by the poor for the poor from the ground up. I'm not going to pretend that I understand all of the numbers involved or the curving of some line on a chart. But I can tell you that when a chicken has been pumped with so many hormones (analogy for generous tax breaks and offshore tax shelters), that it's breasts are so large it's tiny little legs can't support it any longer, the bird becomes helpless and completely dependent. And in case you need the dots connected the gluttonous rich are the chicken's breast and the starving proletariat are the drumsticks.
Peter Merino (5 days ago)
Quantum mechanics and the yield curve...nice lol
trinhkets (5 days ago)
Funny... these investors are telling use to ignore the data, but it is their actions that are causing it. The curve invert when these investors believe that long term gain is safer than short term, meaning their action proves otherwise.
Sven Frontin-Rollet (5 days ago)
Trump signed an executive order demanding made in USA 2025
Sven Frontin-Rollet (5 days ago)
bringing back the manufacturing and jobs to America... Massive growth in steel and aluminium
Karim (4 days ago)
What jobs? They're all done by robots now dummy. Been to a McDonald's lately?
Sven Frontin-Rollet (5 days ago)
we need to be preparing for no more "made in China"
Николай Помещенко (5 days ago)
I expect oposite