Monday Market Minute | Mar 18, 2019

US yield curve inverts for first time since 2007 — recession fears ripple north

What Moved

The US 3-month/10-year Treasury yield curve inverted on March 22 for the first time since 2007, an event historically associated with impending recession. The inversion followed the Fed's dovish pivot at its March meeting, where it signaled no further rate hikes in 2019 and announced a slowdown in balance sheet reduction. Canadian bond yields fell in sympathy, with the 10-year Government of Canada bond dropping below 1.6%.

Why It Matters

While yield curve inversions have preceded every US recession since the 1960s, the lag time has historically ranged from 12 to 24 months. For private markets investors, the signal warranted portfolio review rather than panic. Private credit with short-duration, asset-backed profiles offered relative insulation. PE sponsors began stress-testing portfolio companies against recession scenarios, prioritizing cash-flow resilience.

Signal to Watch

Canadian credit spreads on corporate bonds would indicate whether domestic markets were pricing in recession risk. Widening spreads in the public market would spill over into private credit pricing, potentially improving entry points for new deployments.

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