IDEAS home Printed from https://ideas.repec.org/a/bde/journl/y2018i3daan6.html
   My bibliography  Save this article

The flattening of the yield curve in the United States

Author

Listed:
  • Juan Carlos Berganza
  • Alberto Fuertes

Abstract

The yield curve for US government debt securities has flattened significantly since late 2016 and its slope, while positive, has fallen to levels not observed since before the global financial crisis. The inversion of the yield curve slope is considered, on occasions, as a leading indicator of future recessions. And this, given moreover that the current expansionary phase is proving more durable than previous upturns, has prompted debate on the implications of the recent flattening of the curve. However, as illustrated in this article, unlike previous episodes, in which the flattening of the curve was explained by the behaviour of the interest rates expected at different terms, at this current juncture it is warranted substantially by the compression of term premia. Against this background, the historical relationship between the yield curve and predicted recessions in the US economy might have altered.

Suggested Citation

  • Juan Carlos Berganza & Alberto Fuertes, 2018. "The flattening of the yield curve in the United States," Economic Bulletin, Banco de España, issue MAR.
    • Handle: RePEc:bde:journl:y:2018:i:3:d:aa:n:6
    Note: Analytical Articles
    as

    Download full text from publisher

    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/2018/T1/Files/beaa1801-art6e.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
    2. Alessandro Galesi & Galo Nuño & Carlos Thomas, 2017. "The natural interest rate: concept, determinants and implications for monetary policy," Economic Bulletin, Banco de España, issue MAR.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hansen, Anne Lundgaard, 2024. "Predicting recessions using VIX–yield curve cycles," International Journal of Forecasting, Elsevier, vol. 40(1), pages 409-422.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seitz, Franz & Baumann, Ursel & Albuquerque, Bruno, 2015. "The information content of money and credit for US activity," Working Paper Series 1803, European Central Bank.
    2. Franck Sédillot, 2001. "La pente des taux contient-elle de l'information sur l'activité économique future ?," Economie & Prévision, La Documentation Française, vol. 147(1), pages 141-157.
    3. Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor & Francis Journals, vol. 36(8), pages 817-838.
    4. Yutaka Kurihara, 2016. "Term Structure of Interest Rates under Zero or Low Bound: The Recent Japanese Case," Economy, Asian Online Journal Publishing Group, vol. 3(1), pages 19-23.
    5. Nakaota, Hiroshi & Fukuta, Yuichi, 2013. "The leading indicator property of the term spread and the monetary policy factors in Japan," Japan and the World Economy, Elsevier, vol. 28(C), pages 85-98.
    6. Gül, Selçuk & Taştan, Hüseyin, 2020. "The impact of monetary policy stance, financial conditions, and the GFC on investment-cash flow sensitivity," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 692-707.
    7. Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
    8. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2013. "In the Shadow of the U nited S tates: The International Transmission Effect of Asset Returns," Pacific Economic Review, Wiley Blackwell, vol. 18(1), pages 1-40, February.
    9. Manqoba Ntshakala & Laurence Harris, 2018. "The information content of the yield spread about future inflation in South Africa," WIDER Working Paper Series wp-2018-63, World Institute for Development Economic Research (UNU-WIDER).
    10. Jesús Crespo Cuaresma & Ernest Gnan & Doris Ritzberger-Grünwald, 2005. "The Term Structure as a Predictor of Real Activity and Inflation in the Euro Area: A Reassessment," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(2), pages 318-342, July.
    11. Pawel Dlotko & Simon Rudkin, 2019. "The Topology of Time Series: Improving Recession Forecasting from Yield Spreads," Working Papers 2019-02, Swansea University, School of Management.
    12. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
    13. Lucjan T. Orlowski & Kirsten Lommatzsch, 2005. "Bond Yield Compression in the Countries Converging to the Euro," William Davidson Institute Working Papers Series wp799, William Davidson Institute at the University of Michigan.
    14. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
    15. Donati, Paola & Donati, Francesco, 2008. "Modelling and Forecasting the Yield Curve under Model uncertainty," Working Paper Series 917, European Central Bank.
    16. Aguilar, Pablo & Vázquez, Jesús, 2021. "An Estimated Dsge Model With Learning Based On Term Structure Information," Macroeconomic Dynamics, Cambridge University Press, vol. 25(7), pages 1635-1665, October.
    17. Hanabusa, Kunihiro, 2017. "Japan’s quantitative monetary easing policy: Effect on the level and volatility of yield spreads," Journal of Asian Economics, Elsevier, vol. 53(C), pages 56-66.
    18. Vidal Fernadez Montoro, 2001. "Expectations and Behaviour of the Spanish Treasury Bill Rates Patterns in Neighboring Areas," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 5(1), pages 61-83, Summer.
    19. Unn Lindholm & Marcus Mossfeldt & Pär Stockhammar, 2020. "Forecasting inflation in Sweden," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(1), pages 39-68, April.
    20. Ibarra-Ramírez Raúl, 2021. "The Yield Curve as a Predictor of Economic Activity in Mexico: The Role of the Term Premium," Working Papers 2021-07, Banco de México.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:journl:y:2018:i:3:d:aa:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España (email available below). General contact details of provider: https://edirc.repec.org/data/bdegves.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.