SF Fed Blog Post on the Yield Curve

Thomas Mertens and I wrote a post for the SF Fed Post on the current shape of the yield curve. This shape is a little odd, to say the least: The conventional ten-year-minus-three-month spread has declined substantially over the last year, but is still positive. By contrast, the five-minus-one-year spread has turned negative. What to make of this?

Read the post here: Did the Yield Curve Flip? Will the Economy Dip?

This blog post is based on two recent Economic Letters that we wrote about the predictive power of the yield curve:

  • In Economic Forecasts with the Yield Curve (March 5, 2018) we documented the excellent track record of the yield curve to predict future recessions, and argue that there is little reason to think that “this time is different.”
  • In Information in the Yield Curve about Future Recessions (August 27, 2018) we dig deeper into three related questions: First, which spread is the best summary of the shape of the yield curve to predict recessions? Second, should we adjust the spread by estimates of the term premium? Third, what can we say about the direction of causation?

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