The yield curve's reputation as an excellent and reliable indicator of recessions is reestablished.
New studies of Frederic Mishkin show that the yield curve has been the best recession indicator over the past 30 years: Every time the curve inverted a downturn followed a year later.
The last time the difference curve crossed the zero line was in 1989 - a year later a recession followed.
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Usually Investors demand a premium for long-term investments e.g. 10 year Government Bonds or 10 year Treasury rates.
A steep curve - low short term interest rate versus high longterm rates - expresses an economy which may grow too strongly: Usually investors demand higher rates.
If the economy is healthy and inflation is expected to stay low, investors demand only a small premium for their longterm investment
A yield-curve inversion occurs when e.g. the Fed is driving up interest rates or when investors in fear of a recession lock their money in long term bonds, which is driving those yields down.
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