Using The Yield Curve Data To Predict GDP Growth

 Using The Yield Curve Data To Predict GDP Growth


The yield curve data has surpassed its reputation of merely just being a simple predictor of economic growth. The rule behind its interpretation is simple such as when an inverted curve is weed news displayed then it means a recession is about to happen after a year, and the yield curve inversions have proven reliable for each of the last seven recessions. The most recent recession predicted by the yield curve is the December 2007 recession. An inverted curve was shown in August 2006 and just months more than a year, the recession happened.

Other predictive slopes of this data include a flat curve which signifies slow growth and the steep curve which signifies fast growth. The yield spread between the ten-year Treasury bonds and three-month Treasury bills is a measure of slope that can be used to predict GDP growth. Predicting GDP growth is achieved by examining the yield spread values’ history and GDP growth. You can evaluate the prediction and see the GDP growth one year in advance.

Though you can use yield curve data to forecast how high GDP’s growth is, it is a bit weak in foretelling the actual number, mostly the case with recessions. In this case, you can utilize its attributes to forecast if the economy will or will not experience recession in the future.

Many experts advice not to take these numbers on GDP’s forecast factually, since this forecast has a chance to be inaccurate, the same with the case of all statistical estimations. There are also researchers that claimed that the principal determinants of the present yield spread are diverse from the determinants that produced yield spreads in the past. Though that is the case, the yield curve data still contains valuable information that can be used for the analysis of market strategies and like most tools, they should be assessed carefully.



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