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…