Curve watchers Anonymous has an eye on the yield curve. Here is a snapshot of year-end-closing values from 1998-12-31 through 2015-12-31.
Yield Curve Year End Closing Values 1998-2015
Unlike 1999-2000 and again 2007-2007, no portions of the yield curve are inverted today (shorter-term rates higher than longer-term rates).
Inversion is the traditional harbinger of recessions, but with the low end of the curve still very close to zero despite the first Fed hike, inversions are unlikely.
Yield Curve Differentials: 3-Month to Longer Durations
Yield Curve Differentials: 1-year to Longer Durations
Yield Curve Differentials: 2-year to Longer Durations
In general, albeit with some volatility, the yield curve has been flattening and spreads shrinking since 2013.
If the economy was truly strengthening, one would expect the yield curve to steepen, with rates rising faster at the long end of the curve rather than the short end of the curve. But that’s certainly not happening.
Is an Inversion Necessary to Signal a Recession?
Many believe no recession is on the horizon because the yield curve is not inverted.
Pater Tenbebrarum at the Acting Man blog dispels that myth in A Dangerous Misconception.
