Yield Curve Says Probable Recession
John Mauldin notes:
"The yield curve became more inverted this week, with the negative differential between the 3-month and the 10-year at -49 basis points and a -76 basis point differential between the 10-year and the Feds fund rate. According to a Fed paper, that level of an inversion suggests there is now an over 40% probability of recession next year. This same model only predicted a 50% chance of recession in 2000, and as the paper authors acknowledge, the model probably understates risk in recent decades."
The yield curve and interest-rate data looks like this:
So the question for those who believe markets are future discounting mechanisms: Which market are you going to believe: Stocks or Bonds?
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Source:
Honey, I Created A Bubble
John Mauldin
Investor Insight, November 10, 2006
http://www.frontlinethoughts.com/article.asp?id=mwo111006
Saturday, November 11, 2006 | 01:56 PM | Permalink
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Does the fact that the Fed knows the past probabilities of recession associated with certain yield curve slopes change the future probabilities?
Posted by: BamBam | Nov 11, 2006 2:51:54 PM
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