Sunday, August 15, 2010

The Ominous Sign of the Yield Curve

There's no surefire way to forecast recessions. But watching the "yield curve" comes awfully close.
Essentially the difference between long term and short term U.S. government debt yields, the yield curve is a powerful harbinger of recessions and recoveries. Nearly every time the yield on short-term debt has surpassed the yield on long-term debt—what's known on Wall Street as an "inversion"—a recession has followed.