Term Spreads and Policy Uncertainty in Perspective

The combination of yield curve inversion and high uncertainty is the exception, rather than the rule.

Figure 1: Economic Policy Uncertainty index (Baker Bloom and Davis) (gray, left scale), and 10yr-3mo spread (blue, right scale), and 10yr-2yr spread (red, right scale), in %. January 2019 observation are daily observations through 1/23. NBER defined recession dates shaded gray. Orange denotes Trump administration. Source: policyuncertainty.com, Fed, NBER.

Something to remember when considering this post: the effects might not be additive.

20 thoughts on “Term Spreads and Policy Uncertainty in Perspective

  1. Moses Herzog

    Does anyone remember how many times donald trump has said that anonymous sources are “unreliable” and that anonymous sources are all “liars”?? Of course how something is a “leak” and a “lie” at the SAME TIME donald trump has never explained. But I wonder, when donald trump said anonymous sources were always liars, did he have one specific person in mind??

    Can anyone contact Bruce “Dogberry” Hall for a comment?? I know Bruce Dogberry will want to defend the man Dogberry calls his President, so it’s only fair we give Dogberry that opportunity on this blog. If Bruce Dogberry feels uncomfortable making a statement in public about this, tell him we’ll just refer to Bruce Dogberry Hall as a “Mr. David Dennison”.

    1. pgl

      “Bitcoin was designed to remove depreciation (when adopted).”

      Like traditional money depreciates. No stupid – we are not talking physical assets. DUH!

      1. Moses Herzog

        He obviously means currency devaluation, but this is what happens when you have bad ESL students handling your social media propaganda. Either he’s based out of China or he’s one of these bitter cats that speaks his native language all day and never goes 1/4 mile outside of Chinatown.

        I’ve met this type before, the ones that can’t even go halfway, who refuse to make even half effort to amalgamate or commingle. Then insist that they are being “looked down on”. If you’re going to dogmatically stick close to your own hive then claim your feelings have been wounded, fine. You wanna walk around all day with the big chip on your shoulder, enjoy yourself. It gets old.

        BTW, this link requires you register (FREE), but it’s one of many things online you can find that explains the scam of bitcoin (aka “Buttcoin”)

    2. please_stop

      Bitcoin was designed to remove depreciation

      Cool story, bro. Next you’ll claim it cures cancer.

      1. pgl

        You know Glenn Beck scams people by trying to sell them on gold. I wonder if Zi Zi is a Bitcoin snake oil salesperson.

    3. Barkley Rosser

      Sure. As of about a year ago bitcoin was woth over $19,000 per bitcoin. Today that price is somewhat over $3,000. So, right, no depreciation there at all.

      1. pgl

        A handy source for its historical price:


        Yes – the price has declined a lot but this is not depreciation. It is a massive capital loss. Zi Zi needs to buy a new dictionary assuming he can afford one.

    4. Moses Herzog

      @ Zi Zi
      Most Chinese are very very intelligent people (mainland or otherwise). You are obviously the exception to the rule. Much more ignorant Chinese use bitcoin (I call it “Buttcoin”) as a way to get assets out of the country because of capital controls in China (usually into US dollars when they start panicking, as some Chinese are starting to do now). Zi Zi, if you knew how to be polite and civilized like most Chinese are, I’d tell you I hope you don’t get caught “holding the bag”. In your specific case, I really don’t care.

  2. Moses Herzog

    I found this over on Setser’s site.
    I’m not going to mention anyone by name, but it could largely explain why someone got her butt kicked in Michigan, Ohio, and Pennsylvania. Why would white rural females not vote for a woman for U.S. President?? If you, your husband, and or both saw your factory job go over to India, while a female candidate was celebrating that her husband passed NAFTA, and supporting similar trade deals on the horizon, would you vote for her because she’s saying “Hey look everyone, I come equipped with ovaries!!! Remember that job you had back in 1994?? Now you take verbal abuse from your white trash neighbor working checkout at Wal-Mart?? Screw that, I have ovaries!!!”

    We can debate the pluses and minuses of open trade all day long. We can also argue about clean energy. But an intelligent candidate doesn’t go onto a coal mine campus and say “Hey everybody!!! The solar panel tax rebates are on their way!!! Yeah…. that means you’re finished here. But this makes the air clean, so suck it!!!” Which in essence is what she did when she tried to sell TPP in the midwest and rustbelt country. How much intelligence did it take to see that after Bernie started shaving off her electoral votes, nothing she said on TPP from the point onward was going to be believable.

    What’s really pathetic is reading excerpts from her book. “Uh, I didn’t ignore Pennsylvania, I sent my daughter there to shake hands with the peasants.” “Oh, I didn’t ignore Michigan, Tim Kaine sang lounge act for the riffraff.” “I had lots of staff on the ground” WOW….. WOW lady, you’re making my heart bleed with your oceans of empathy for the man on the street. WTF planet does this woman live on?? Not ours I don’t think.

  3. Moses Herzog

    Another reason it pays to read a lot, as hunting down information X, you will haphazardly find important information Y. From Setser’s trade breakdown:

    “The broader balance of payments still benefits from the post-crisis fall in nominal interest rates (which has held down the interest bill on a net external debt that approaches 50 percent of GDP if you leave out the ‘gold’ at Fort Knox”

    50% is a HELL of a lot yeah?? Wasn’t this ANOTHER thing donald “the great inheritor” trump promised he was going to change?? What happens when rates start climbing again?? (and I’m talking about market rate moves, not Fed moves) That’s gonna be a fun carnival ride.

  4. pgl

    VP Mike Pence seems to believe in Manifest Destiny:


    “Manifest Destiny, a phrase coined in 1845, expressed the philosophy that drove 19th-century U.S. territorial expansion. Manifest Destiny held that the United States was destined—by God, its advocates believed—to expand its dominion and spread democracy and capitalism across the entire North American continent.”

    Except he would extend this to South America too:


    “I will continue to use the full weight of United States economic and diplomatic power to press for the restoration of Venezuelan democracy,’ Trump said in a statement. “We encourage other Western Hemisphere governments to recognize National Assembly President Guaidó as the Interim President of Venezuela, and we will work constructively with them in support of his efforts to restore constitutional legitimacy” said Trump in a statement he Tweeted.

    Pence argued that Trump was against America’s military being spread in foreign lands when it came to places like the Middle East but praised Trump’s willingness to get involved with regime change in places like Venezuelan. Go figure!

  5. pgl

    Here’s a twist on the WALL controversy. Even anti-immigrant groups like FAIR think the WALL is a stupid idea:


    House Democrats are putting together a $5 billion smart border security proposal. Trump’s own base will likely applaud it. Trump needs to get on board lest he comes across as the Village Idiot he is!

    1. Willie

      That’s because a wall is a stupid idea. There’s historic precedent. As a supposedly religious person, Mike Pence should be aware of Jericho and how well that wall did. The Great Wall of China didn’t do a whole lot of good over the years, either. Hadrian’s Wall might have slowed down cross border raids for a little bit, then not so much. Those failures are all before modern tunneling technology, just to stick to the wall, and those failures also happened before it was so easy to go around a wall in a shipping container or on a commercial flight.

      But, what do I know. Not much. I just read books and stuff and don’t watch TV.

    1. Willie

      Rudy isn’t the only one. But, nobody in this parody of a presidency will get punished for what they do during the administration. It would set too many bad precedents, and the GOP would be bent on revenge, just as they have been since Nixon resigned under a cloud. The race baiting and two-bit mobster routine that Rudy has been guilty of will fade away over time as the nation finishes becoming what it is on its way to being. I hope to live to see it. No breath being held because that would make sure I didn’t live to see it.

    2. Moses Herzog

      @ pgl
      It’s too much stuff to keep up with. Video wise I’m mostly sticking with MSNBC, and then, for reading, the more quality hardcopy papers or websites. In fact my mind is so congested and muddled with donald trump’s endless illegalities, I forgot the nickname we gave Wilbur Ross. Now you know when I forget my snarky nicknames I give to these infestations on humanity, that it’s all too much to take in:

  6. don

    Yield inversion is often cited as evidence of monetary-policy-induced recessions, but there must be other stories that might explain the correlation.

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