The yield curve dis-inverts, sort of

Long term yields have jumped up, as Jim noted. The spread between the 10 year and 3 month interest rate has moved positive.

This outcome is illustrated in Figure 1. The red square shows data for 6/27.


Figure 1: Ten year-three month spread, in percentage points, monthly average of daily data (blue line), and spread as of 6/27/07 (red square). NBER recession dates shaded gray. Source: St. Louis FRED II, NBER, and author’s calculations.

Is the threat of recession over? As highlighted by the placement of the NBER-defined recessions (shaded gray), slowdowns typically come after the spread reattains a positive value.

More caution should be drawn from the entire maturity spectrum. The June 29th yield curve (green, below) shows that — if the risk-neutral expectations hypothesis of the term spread is taken at face value — rates between 6 months from now and 2 years from now will lower than 6 months from now.


Figure 2: Yield curve, Green (6/29), Orange (6/28). Source: Bloomberg, accessed on 6/29/07.

Technorati Tags: ,


One thought on “The yield curve dis-inverts, sort of


    Opening Bell: 7.3.07

    Kraft offers €5.3bn for Danone’s biscuits (Times Online) If there’s something a little dirty sounding in this article, don’t worry, it’s all good. Kraft is looking to up its investment in the cracker and cookie market, as its offered to…

Comments are closed.