We introduced and discussed the yield curve and how it has historically been a reliable predictor of recessions last week. (In review, the yield curve is simply a plot of all the government securities – one-month through 30-years.)

We were interested to see how the recent drop in yields has impacted the yield curve.  Our concern was that the drops have been concentrated on the long-end of the curve – five years and out.  If that occurred, the yield curve would show signs of flattening. This wouldn't be desirable because it could portend bad things to come.

That good news is that with the exception of the one-month T-bill and the one-year T-note, yields have been relatively uniform in falling.  As we noted earlier, we would like yields to cease falling, because that would indicate expectations for more economic activity.  Sluggish activity remains an overhang.

That said, the yield curve looks healthy and normal. This suggests there is still reason to view 2016 with optimism, which we do. Though global economic activity has slowed in recent month, it appears a recession isn't imminent.

Information provided by Jessica Regan.

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