The Power of the Yield Curve

This is from Wikipedia:

All of the recessions in the US since 1970 (up thru 2011) have been preceded by an inverted yield curve. Over the same time frame, every occurrence of an inverted yield curve has been followed by recession as declared by the NBER business cycle dating committee.

I knew it was a strong relationship but I didn’t realize it was that strong. I went to FRED and dug up a chart, and sure enough, it is that strong.

A few years ago I found that the entire capital gain of the S&P 500 from 1962 to 2007 came when the yield curve has been wider than 65 basis points. Anything less than that has added up to zero.

Posted by on December 20th, 2011 at 11:47 am

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