Abstract

We document a structural break in the relationship between the US Treasury yield curve and subsequent NBER recessions that has not, to our knowledge, been systematically characterized in the existing literature. Using monthly FRED data from January 1962 through April 2026, we estimate a probit model of 12-month-ahead recession occurrence on the contemporaneous 10-year minus 3-month yield spread and find that the slope coefficient on the spread has collapsed from -1.36 (t = -7.22; HAC t = -4.18) in the pre-2008 sub-sample to +0.04 (t = +0.14; HAC t = +0.11) in the post-2008 sub-sample, with the area under the receiver-operating-characteristic curve falling from 0.898 to 0.491. The post-2020 sub-sample yields an AUC of 0.000, statistically indistinguishable from worst-case prediction. The empirical centerpiece is the 2022Q4–2024Q4 inversion episode, in which the 10Y–3M spread averaged -0.94 percentage points across 25 consecutive months—the longest sustained inversion in the post-1962 record—without a single NBER-dated recession month. We compare specifications across four spread definitions (10Y–3M, 10Y–2Y, 10Y–5Y, 10Y–FF) and five forecast horizons (3, 6, 12, 18, 24 months); the break appears in all twenty combinations. A sup-F structural-break test on the slope coefficient localizes the maximum-likelihood break date to 2009Q1, immediately following the launch of the first large-scale asset purchase program, with the 90% confidence interval [2008Q3, 2009Q3]. We perform an Adrian-Crump-Moench (2013) term-premium decomposition and run the predictive probit separately on the expectations and term-premium components, finding that both components lose predictive content post-2008. The Engstrom-Sharpe near-term forward spread similarly attenuates (post-2008 AUC = 0.51), weighing against the strict term-premium-compression account. We partition the post-2008 sample into zero-lower-bound and non-ZLB periods and find that the attenuation is present in both environments, though more severe during non-ZLB episodes. We discuss four candidate explanations for the break—term-premium compression following secular declines and quantitative easing; post-COVID fiscal expansion that has substituted for the conventional credit channel; household and corporate balance-sheet strength entering the 2022 tightening cycle; and pandemic-era labor-market reallocation—and engage an alternative framing in which the 2022–2024 outcome represents a monetary-policy success rather than a forecasting failure. We close by drawing implications for forecasting practice, monetary-policy deliberation, and the broader literature on the empirical content of term-structure variables in an institutional environment where the central bank is itself a substantial participant in the long end of the curve.