March 20, 2009
TALKING ABOUT THE YIELD CURVE ON THE INSIDE VIEW
Economic research published since the late-1980s tells us that watching the Treasury's yield curve is a productive exercise for analyzing the outlook for the business cycle and interest rates. In 2006, for example, the New York Fed offered a primer on why the yield curve is useful as a forward-looking indicator. As it turned out, the yield curve was set to invert at the time, offering an advance warning that the economy was headed for trouble. Few heeded the warning, thanks largely to a bull market in virtually everything. The recent past, once again, has a habit of clouding the crowd's ability to look ahead.
Normally, the Treasury yield curve is upward sloping: yields rise along with bond maturities. When the curve inverts—short rates above long rates—that’s often a sign of trouble brewing. For some thoughts on why that’s so, we recently talked with Bob Dieli, an economist who runs RDLB Inc, an economic consultancy that publishes research at NoSpinForecast.com.
On the new episode of the Inside View podcast, Dieli explains why the yield curve is a critical measure of current and future economic and financial trends...
Posted by jp at March 20, 2009 9:13 AM
My "long way" comment refers to the reported numbers on the economy and the fact that, so far, we've yet to see any positive sign of substance that suggests that a bottom has been reached. I'm referring to trends in the labor market, housing, industrial production, business and consumer spending, etc. I too think that by late this year we'll see some positive signs, but that certainly feels like a long time from now. In extraordinary periods of economic and financial volatility, six months or a year feels like an eternity.
Posted by: JP at March 23, 2009 9:38 AM
Great post as usual !
Posted by: Steve at March 21, 2009 4:56 PM
I came to your “capital spectator” site through “Bonddad". I think it is very interesting and informative and it’s become a regular read for me.
I have a question:
In your March 17 “Spring has sprung” note you say: …we're a long way from a "recovery" that's worthy of the name.”
In your March 20 “Inside View podcast” Bob Dieli says he thinks the “economy should be showing expansion by 3rd or 4th quarter.”
It seems that you do not agree with Mr. Dieli. If you have the time and are of the mind, I hope you might clarify what seems to be a disagreement between the two of you.
Posted by: Tom Verso at March 21, 2009 9:09 AM