The shape of the yield curve has a good track record of predicting recessions. A normal yield curve slopes upwards, with yields on longer-dated bonds higher than shorter-dated ones.
The US yield curve has been flattening over the past year, raising worries that the yields at the short end of the curve will overtake yields at the long end – a phenomenon known as yield curve inversion, which would spell trouble for the US economy. Since the mid-1950s, the yield curve has inverted before each and every recession in the US.
However, despite the flattening US yield curve, there is no need to panic for now, says Nordea Markets analyst Jan von Gerich. For one, the curve is not even close to inverting yet.
Recent yield curve moves are in line with the upturn still having at least two to three years left, which would make the US upswing the longest on record next year.
For the full analysis, visit Research on e-Markets.
Hear the podcast related to the analysis with Jan von Gerich and Anders Svendsen.