Research

(Don't Fear) The Yield Curve

Eric Engstrom and Steve Sharpe, Board of Governors of the Federal Reserve System (FEDS Notes) · 2018

Every rates interview eventually asks whether an inverted curve predicts recession. This note shows which part of the curve carries the signal and why, which turns a cliché into an argument.

• Macro and rates
• Markets

1 idea from this research

• FrameworkMacro and rates

  The near end of the curve carries the recession signal, not the long end

  An inverted curve is the market expecting cuts; read the near-term forward spread, because the long spread is diluted by the term premium.

  Rates, macro and sales and trading interviews, and any time a headline says the curve has inverted.