What's the yield curve saying?

Every day, it seems the yield curve gets more deeply inverted. The federal funds rate (5.25%) is now higher than the yield on every kind of Treasury security. As a matter of fact, the yield on 5-year Treasury Notes (recently 4.77%) is almost 50 full basis points below fed funds.

Here's where it gets interesting: The Fed published a yield curve study a few years ago. It concluded that you can use the spread between 3-month Treasury bill yields and 10-year Treasury Note yields to estimate the probability of a recession within the next four quarters.

A year ago, 10-year notes yielded 69 basis points MORE than 3-month bills. That indicated a paltry 10% recession risk. Now, 10-year notes are yielding 27 basis points LESS than 3-month bills. That indicates about a 1-in-3 chance of recession. Stated another way, the odds of a big economic downturn have tripled.

Hard landing anyone?