After ten continuous months of inversion, the yield curve (spread between the yield on the three-month and ten-year US treasuries) reverted back to a positive slope for the first time on May 18th. From there, the spread widened at a quick pace to a high of 62 basis points on June 15th.
Since then however, it has been all down hill, as the curve quickly became inverted once again on July 20th and has remained so ever since.
One can go through the Estimated Recession Probabilities using the Yield Curve Spread and verify Yield Curve as a Predictor of U.S. Recessions.
http://www.newyorkfed.org/research/current_issues/ci2-7.pdf
According to it market is expecting a recession - this phenomenon is of continuity expectation of recession since end of 2005. The market sentiments is depicting with .4+ probability that there is a recession on the way. There may be different reasons why these sentiments are prevailing – market is the reacting and keeping the recession at bay?
Posted by: Amrit Pal Singh | August 07, 2007 at 01:05 AM