Rapidly flattening yield curve a recession danger sign, says NY Times

(June 27): The so-called yield curve is perilously close to predicting a recession -- something it has done before with surprising accuracy -- and it’s become a big topic on Wall Street, says The New York Times.

The yield curve is basically the difference between interest rates on short-term US government bonds, say, two-year Treasury notes, and long-term government bonds, such as 10-year Treasury notes. Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones.

The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise -- which suggests traders are concerned about long-term growth -- even as the economy shows plenty of vitality.

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