Recession Signal From Yield Curve May Not Work, ECB Says
- Deep inversion has previously been a red flag of recession
- Years of bond buying has compressed term premium, says ECB
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The European Central Bank said the yield curve may be less able to predict recessions because of the market distortions caused by massive central bank bond buying.
The ECB, writing in its review of the July policy meeting, said central bank action has compressed the yield premium that investors demand to hold long-dated debt, which “could reduce the predictive content of the slope of the yield curve for economic growth.”