Credit Suisse strategists said futures indicate a recession might not hit the U.S. until 2026, versus conventional wisdom suggesting a recession starting in September of 2023.
The strategists note, according to commonly accepted beliefs, when the yield curve becomes inverted, it often indicates an upcoming economic downturn. Historical data suggests that inverted yield curves tend to precede recessions by approximately 11 months. In this case, the 3M-10Y spread turned negative on October 25, 2022, suggesting that a recession is likely to occur in September of this year.
However, based on the firm's own analysis, they have found that recessions tend to commence when the yield curve starts to flatten again after being inverted. This observation aligns with common intuition since the yield curve typically steepens when the Federal Reserve lowers interest rates in anticipation of an economic decline. Currently, based on Treasury futures, it is projected that the yield curve will un-invert for the first time in June 2026. This is a notable shift compared to previous expectations of an un-inversion in April 2024 as of April 30, 2023, and in January 2025 as of May 31, 2023. The recent change in economic outlook, at least to some extent, justifies the strong year-to-date returns they have seen.