, Columnist
The Yield Curve Isn't Infallible
Using the spread between long-term and short-term maturities to assess where rates are going can be misleading.
The signal and the noise.
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In recent months, the yield curve has started to flatten, prompting some of Wall Street’s seers to declare that a recession is in the offing while others say this is just a blip. What is this much-watched method of economic divination trying to tell us?
The yield curve is used to assess the future of interest rates by plotting the return paid by bonds of the same quality across a range of maturity dates. It typically slopes upward: Short-term bonds pay lower rates than bonds that mature farther into the future. But this changes when economic clouds appear on the horizon and traders anticipate lower growth and lower interest rates.