Category Archives: Yield spread

Yield spreads and recessions

The slope of the yield curve, or the yield spread, has consistently predicted recessions. Following a flattening of the yield curve–a rise in yields on short-dated government bonds relative to yields on long-dated government bonds–the economy often contracts. There are different yield spreads, though. Right now some indicate that we are heading for a recession while others imply low recession probabilities. Which ones should you rely upon and what are the implications? I analyse data from the US and Europe (Germany) and provide answers.

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