Historically, yield curve inversions have had a reliable track record of predicting recessions in the United States. 8 Since 1960, the 3-month Treasury yield has moved above the 10-year Treasury yield before every recession except the one in 1990, and, conversely, there has only been one case where the yield curve has inverted and a recession has not followed--in 1966.
This correlation between yield curve inversions and recessions might arise for a variety of reasons. First, let us take a case where short-term rates rise relative to longterm rates.