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The inverted yield curve in the USA: How much time is left until a recession?

In: CNB Global Economic Outlook - May 2019

Author

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  • Martin Motl
Abstract
Something unusual happened on the US bond market on 22 March this year, something that attracted a lot of interest and sparked concerns among many economists and investors worldwide. For the first time in a long time, the yield on 3-month US Treasury bills exceeded that on 10-year US government bonds. The slope of the yield curve for fixed-income US government instruments thus turned negative, with shorter maturity debt instruments generating higher returns than longer maturity bonds. In the past (the last time in August 2007) this has quite reliably signalled a recession in the USA, including a stock market correction. Can similar developments be expected again this time? This article sets out to identify the phases of the business cycle using the slope of the yield curve and the level of sentiment on stock market. It also attempts to estimate the timing of the next recession in the USA.

Suggested Citation

  • Martin Motl, 2019. "The inverted yield curve in the USA: How much time is left until a recession?," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - May 2019, pages 13-19, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:geo2019/5
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    File URL: https://www.cnb.cz/export/sites/cnb/en/monetary-policy/.galleries/geo/geo_2019/gev_2019_05_en.pdf
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    References listed on IDEAS

    as
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    5. Smets, Frank & Tsatsaronis, Kostas, 1997. "Why Does the Yield Curve Predict Economic Activity? Dissecting the Evidence for Germany and the United States," CEPR Discussion Papers 1758, C.E.P.R. Discussion Papers.
    6. Brian Bonis & Jane E. Ihrig & Min Wei, 2017. "The Effect of the Federal Reserve’s Securities Holdings on Longer-Term Interest Rates," FEDS Notes 2017-04-20-1, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Martin Motl, 2020. "Impacts of the COVID-19 pandemic on the world economy," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - April 2020, pages 12-24, Czech National Bank.

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