From Tony Crescenzi yesterday at RealMoney

The current yield spread between three-month T-bills and 10-year
T-notes -- the key empirical gauge -- is 276 basis points, a level that
historically has indicated that the chances of recession 12 months
hence are very small.

In a study by Estrella and Mishkin, a yield spread of more than 121 basis points was associated with just a 5% chance of recession, which makes the current level comforting. For reference, note that the same study showed that a yield spread of -82 basis points (an inverted yield curve), produced 50% odds of a recession. The yield spread was as wide as -60 basis points in February 2007.

In a study by Estrella and Mishkin, a yield spread of more than 121 basis points was associated with just a 5% chance of recession, which makes the current level comforting. For reference, note that the same study showed that a yield spread of -82 basis points (an inverted yield curve), produced 50% odds of a recession. The yield spread was as wide as -60 basis points in February 2007.

Just pointing it out.

Well, there are hundreds, if not thousands of data points that correlate to economic contraction so it's nice to have one albeit obscure potential expassionary indicator

Posted by: Jason | February 11, 2009 at 12:14 AM

oops! expansionary

Posted by: Jason | February 11, 2009 at 12:15 AM

The Yield Curve is inverted:

Model of the Yield Curve.

Computation of the Normal Yield Curve.

The steepness of the yield curve is negatively correlated with short-term interest rates and positively correlated with the volatility of interest rates.

It will normal when the rate of the 30 years Treasury Bonds will be 4.70%.

Plea for a New World Economic Order.

Posted by: Shalom P. Hamou | July 18, 2009 at 08:18 PM