Do Treasury Yields Forecast Recession?
Data source: US Treasury Summary I show how to build a simple model of the real GDP (Gross Domestic Product) for the US economy using data publicly available from the Federal Reserve and US Treasury. I do this using the popular Python programming environment. Although the yield spread has a statistically significant effect on GDP its magnitude is small. Introduction The pattern on the chart above looks ominous. It shows the constant maturity yields for US bonds and bills from 1990 until the current day. The multiple curves are for different maturities starting at 3 months (blue) and ending with 20 years (green). The dominant hump feature centred around 2007 is due to the global financial crisis when the short term interest rate rose quickly to equal the long term interest rate. There is a similar feature emerging at the moment. The yield curve inversion that happened in the middle of last year has been much discussed in the financial press and also by the Federal Reserve ...