Which recession indicators can investors safely watch?

The 10-year Treasury yield’s current performance compared to 2007 has some investors looking for signals of a recession. The increase in Treasury yield curves is a constant topic of discussion now as well as what investors should look at to indicate a recession.

Economic headwinds are expected to impact markets in the fourth quarter of 2023, with experts questioning the performance of markets following the Fed’s interest rate pause and its open-ended option for one last rate hike this year.

Several safer investments during these volatile times are recommended, as investors should take advantage of the shorter end of the yield curve. A 5% return for doing nothing and taking no risk at all is an attractive investment at the moment.

The VIX, Fear Indicator, currently stands above 18, indicating a lot of volatility and a flight to safety in the 10-year yield. A reliable indicator of whether a recession is coming is the inversion of the yield curve, which occurs when short-term interest rates go above long-term ones.

This has been a reliable indicator in the past, as much is dependent on interest rates. As the Fed increases short-term interest rates, industries dependent on it, knowingly or unknowingly, start to suffer.

Real estate is the most obvious example, with weak housing sales due to higher mortgage rates. The inversion of the yield curve has been a reliable indicator in the past of a recession to come.

US treasuries are yielding over 5% now, making them a good investment option. Investors can buy all the way out to six-month US treasuries and get a 5% return without running any interest rate risk. Investors are advised to sit on the short end of the yield curve until things look better and central banks start cutting interest rates again.