Overview
Recession
Yield curves

Recession risk - an early warning system

EUROZONE

Yield Curve Differential

VERY LOW RECESSION RISK
30-06-200831-03-201030-11-201129-11-201331-03-201631-01-201828-02-202030-11-202129-09-202330-06-2025-1.0%1.0%2.0%3.0%
UNITED STATES

Credit Spread Differential

SOME RECESSION RISK
31-Dec-9931-Dec-0231-Dec-0531-Dec-0831-Dec-1131-Dec-1431-Dec-1731-Dec-2031-Dec-23-5050100expansion territoryslower growth priced-inrecession territory
UNITED STATES

Recession Indicators

VERY LOW RECESSION RISK
31-12-197931-03-198530-06-199030-09-199531-12-200031-03-200630-06-201130-09-201631-12-20210.20.40.60.81.0Sahm danger zone >0.5

Insights

22-06-2026
CONCEPT

This dashboard is our forward-looking RADAR to see if a recession likely to happen soon. We monitor (1) the US vs EU Yield curve differentials (using Treasury & German Bunds) and (2) US investment grade spread differentials (7-10Y minus 1-3Y), but also (3) the Sahm rule (that monitors unemployment) vs US NBER recession monitor, and (4) the NY Fed probability of recession (which looks at US yield curve trends).

CURRENT READINGS

  • The German 10Y-3M curve differential is positive and normal, with later maturities paying more than shorter maturities. This indicator flags VERY LOW RECESSION RISK of recession at the moment (toggle the chart to see comments on the US and/or German 10Y-2Y curve differentials). In parallel, the US IG credit curve is flattening, indicating SOME RECESSION RISK. The Sahm rule is at 0.1, falling and reporting a VERY LOW RECESSION RISK of recession. On the other side, The NY Fed recession model reports a 15.0% probability of recession probabilities 12-months from now (VERY LOW RECESSION RISK).

    • MARKET IMPLICATIONS

  • In summary and looking at everything together, a recession is unlikely anytime soon.

    • When recession risk is low, investors can deploy their full risk budget according to their own preferences. With a rising risk of recession, investors should progressively reduce their stock exposure instead, increase portfolio quality, move from aggressive to defensive factors and sectors. On the fixed income side, it would be time to increase exposure to higher quality, longer-duration government bonds, and increase liquidity by rising some cash and potentially adding gold.

    EXPLANATORY NOTES

    Yield curve mechanics - when short-term yields exceed long-term yields, the yield curve inverts: historically, an inversion precedes a recession by 12-24 months and as soon as the inverted curve re-steepens above 0%, a recession is normally imminent. Yield curves predict a recession when they invert (the 10Y vs 3-month yield differential tends to be more reliable than the better known 10Y-2Y).

    Credit spread differentials - The US IG curve works in a similar way. It is a lesser known, quirky but solid recession indicator: when longer term spreads pay the same as (or less than) shoter-term spreads, meaning that the spread differential goes flat or negative, a recession is priced-in by the market.

    Recession probability models - US recession probability models are a more classic way to anticipate (or confirm) a recession. The Sahm Rule flags the start of a recession when the 3-month moving average of the national unemployment rate rises 0.50% or more relative to its low during the previous 12 months. The NY Fed Model uses the yield curve to forecast recession probability 12 months out.

    Overview
    Recession
    Yield curves