Slump-Watchers Dump Yield Curve for 1970s Tool: Cutting Research

The U.S. Treasury yield curve has lost its forecasting power and investors wanting to divine the possibility of a U.S. recession should turn to a little-known equation from the 1970s.

That’s the recommendation of Morgan Stanley economist Ellen Zentner, who told clients in a Nov. 18 report that the Federal Reserve’s near-zero interest rate and asset-buying is holding down U.S. bond rates. That means the yield curve would struggle to invert, crimping its effectiveness as an indicator of business cycles, she wrote.