What Does The Inverted Yield Curve Really Tell Us?

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Is The Inverted Yield Curve So Wrong?

 

The yield curve tells us more about the Global Liquidity cycle than it does about the business cycle. Consider a sequence that starts with the liquidity cycle, moves to the yield curve and ends with the business cycle. The first linkage is robust: the second between the yield curve and the business cycle is flaky. The latest yield curve inversion is exaggerated by highly negative term premia. These are in part explained by past tight liquidity conditions, but they also result from a structural lack of collateral. We report a different yield curve measure that seems less distorted. It points to a low point in US economic activity around mid-2023.

 

 

 

See our latest published research, Global View: Is The Inverted Yield Curve So Wrong? – 23rd June 2023

 

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