What Information Does the Yield Curve Yield?

A new post by Michael W. Klein shares the concern about the possibility of an upcoming recession that “Forecasting the twists and turns of the economy is difficult. One set of indicators used to gauge where the economy is headed draws on information from financial markets since the yields paid by financial assets reflect the collective market view of the future state of the economy. An inverted yield curve — when interest rates on short-term Treasury bonds exceed those on longer-term Treasury bonds — has in the past proven to be a strong indicator of an oncoming recession. While the U.S. economy is not currently experiencing an inverted yield curve, the difference in yields between shorter- and longer-term Treasury bonds has narrowed. The movements in the yield curve, as well as in other financial market indicators, have raised concerns that the current long expansion of the United States economy may be coming to an end.”

Continue reading here. Also see my previous post on forecasting recessions.

Posted by at 3:53 PM

Labels: Forecasting Follies

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