US yield curve - flattening recently...

[FrankCFA]

CFA told us “The yield curve is sharply upward sloping , and the economy is likely to expand in the future.”
Now US yield curve is flattening…..means slowdown??

 

[S2000magician]

In general, yup.

 

[FrankCFA]

S2000magician wrote:
In general, yup.

Thanks, but interesitng, consensus views now are US economy is accelerating?

 

[S2000magician]

former trader mentioned in another thread that the US yield curve has inverted 7 times since 1930 or so, and six of those times a recession ensued.

 

[former trader]

It’s the most reliable indicator of a recession. Since WW2, an inverted curve has occured 7 times, preceeding 7 out of the last 8 recessions. The only non signal was 1960; the curve was very close to 0.

 

[Tommy83]

The Cleveland Fed has done analysis on the shape of the yield curve for some time now; https://www.clevelandfed.org/en/Our%20Research/Indicators%20and%20Data/Y...
I’ve always thought it was cool. However, in a world where central bank policies have become increasingly unconventional (buying longer term securities), is this leading indicator going to be as reliable in the future as it was in the past?

 

[FrankCFA]

Thanks for sharing, Tommy. The Yield Curve and Predicted GDP Growth article is interesting.

 

[PhillyKid126]

Long term yields falling while the economy is improving is an odd paradox that also occured in the US in the 80s and 90s. Both times there was disinflationary pressure around the world, just like there is today in developed markets. The US is more interesting than other bond markets because the yield curve tells you a story about what’s going on outside the US and not just within. Even though the economy is improving in the US, global growth is still a big concern, which is why global investors are sending their money to the US. When yields were hovering around 4% at the end of 2013 with inflation at about 1.5%, real yields became pretty attractive, especialy for such a highlight rated asset like US govt bonds. So buying up US govt debt pushed long term yields lower (flattening the yield curve) while boosting the US dollar. This is just a cliff notes version of what’s going on, but it might help with your question.

 

[FrankCFA]

Thanks Philly!

 

[former trader]

PhillyKid126 wrote:
Long term yields falling while the economy is improving is an odd paradox that also occured in the US in the 80s and 90’s.

Greenspan called it the global savings glut.

 

[perdition]

This could all get confusing as far as the exam goes.
The curriculum still relates to a world where monetary policy existed, before zero interest rates.
Best stick with the theoretical model of flattening curves and imminnet recession.

 

[PhillyKid126]

Agreed with perdition. I was just answering Frank’s question with regards to what’s currently going on with a flattening yield curve in the US. But I definitely would not use any of that logic when answering a CFA exam question. Best to stick with their curriculum.