Round numbers have an enduring appeal, not least in financial markets. The Dow Jones Industrial Average closing above 10,997 is not newsworthy. This week’s breach of the 11,000 level is seen as important, indicative of bullish sentiment. But should the shape of the US yield curve temper that enthusiasm?

The gap between short-term and long-term yields is close to the most important round number – zero. An inverted yield curve, when short rates move above long-dated yields, is often seen as a prelude to recession. The curve between 10-year and two-year Treasuries has already briefly inverted, but research suggests that the spread between 10-year and three-month yields, which is still positive, is a better predictor. Morgan Stanley calculates that recession has followed every inversion since 1950, except in 1967 when the economy still slowed sharply. Lehman Brothers finds similarly accurate prediction of recessions, but notes that the link between yield curves and equity performance has weakened since 1990. Also, a curve which is flat, but not inverted, such as in 1995, need not imply market weakness.