NY Fed Study On Yield Curve Inversion

[jyl]

The topic of the yield curve has come up here, so when I ran across this link I thought others might be interested.

http://www.ny.frb.org/research/capital_markets/ycfaq.pdf

I think Greenspan has been suggesting that yield curve inversion no longer works as a leading indicator for recession, but there seems to be a lot of evidence contradicting his view.

If you just want to skim it, some interesting bits are the first Q&A (p.2), the last Q&A (p. 10), and the two charts on p.19.

The referenced charts suggest that the yield spread is not yet at levels that have preceded prior recessions. It may be at levels that have preceded prior mid-cycle slowdowns (e.g. mid-1990s, mid-1980s), but I don't have a GDP chart handy.

[turbo6bar]

Haven't finished the read, jyl, but I fully intend. Here's an interesting graph from Yahoo! Finance bond page:



Looks like we'll see inversion in a matter of weeks or a couple months. Do you think this will affect the outlook for 2006?
Jurgen

[turbo6bar]

http://www.bloomberg.com/markets/rates/

4.37 3 month
4.45 6 month
4.31 2 year
4.26 3 year
4.25 5 year
4.31 10 year
4.49 30 year

OK, so we're inverted. According to the Fed study linked by jyl, this level of inversion indicates a 30% chance of upcoming recession.

Choppy waters ahead...