Then-Treasury secretary Snow said in a Jan. 6, 2006, interview that “there’s no reason for great alarm” after the 2-year/10-year spread had returned to flat from an inversion the prior month. With rates low at both the front and long end, “the yield curve under these circumstances doesn’t foretell anything ominous for the economy.” Snow, now chairman of Cerberus Capital Management, said Tuesday that he stands by his statement.

Dismissals of the curve’s warning signal back then were not confined to the Washington beltway. Bill Gross, then-manager of the world’s biggest bond fund and co-founder of Pacific Investment Management Co., said in a January 2007 interview that the shape of the curve wasn’t as accurate a recession predictor as it once was because demand for Treasuries by foreign central banks had distorted the traditional relationship.

“I don’t think I’m concerned with it,” Gross said. “I don’t think Bernanke’s concerned with it.” Gross, who announced his retirement from Janus Henderson Group Plc in February, did not respond to a request for comment.

‘Silliness’

Worries about an inverted 2-year/10-year curve amounted to “silliness,” Lou Crandall, chief economist of Wrightson ICAP in New York, wrote in a January 2006 note. In fact, few economists were standing by the theory that yield-curve inversions signaled a recession.

“Ouch,” Crandall said Tuesday in reaction to his own 2006 views. “Forced to choose a simple yes-or-no answer, I would say that I still take that general view -- though with a little more nuance than just writing it off as ‘silliness’ in a throwaway line,” he wrote in an email. Inverted yield curves are “symptomatic” of late-cycle conditions when recessions are more likely and not “concrete” signals, he said. The decline in long-term yields over recent months “has made a recession less likely rather than more,” Crandall added.

‘Run for the Exits’

Not everyone at the time agreed an inverted curve should be ignored. Inversion is “a horse with a track record we would rather not go against,” David Rosenberg, then-chief North American economist at Merrill Lynch & Co., told clients in January 2006. That same month, James F. Smith, a professor at the University of North Carolina and the U.S. bond market’s most accurate forecaster back then, was quoted as saying that “when the curve inverts, run for the exits.”

Then, as now, some analysts pointed to the negative effect the inversion would have on banks.

“People say it’s going to be different this time because of the low level of interest rates; what that argument misses is the fact that somebody has to make money lending money,” Marc Seidner, then-director of active core strategies at Standish Mellon Asset Management, said in a January 2006 interview. “The yield curve matters because financial institutions make money by borrowing at low short-term interest rates and lending at higher long-term interest rates,” said Seidner, who is now at Pimco. When the gap narrows, “one cannot profitably borrow short and lend long, and the incentive to do that diminishes. If there’s less borrowing activity, people aren’t investing in future growth.”