Tuesday, December 27, 2005

Inverted Yield Curve

The yield curve rarely inverts. And when it does, it usually spells trouble for the economy. It means that investors and the Federal Reserve are fretting about inflation in the short term, and that investors are pessimistic about long-term growth. Most economists believe that periods of prolonged inversion of the curve between two-year and 10-year government bonds have generally presaged recessions. The most recent period of inversion ran from February 2000 through December 2000—just before the 2001 recession. Note the duration of that inversion. At this point, this represents a faint glimmer of an amber caution light.

Beware the Yield Grinch

Marginal Revolution


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