YieldCurve - Economist.com Pgina 1 de 2 Admiring those...

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Admiring those shapely curves Apr 2nd 1998 From The Economist print edition The gap between short-term and long-term interest rates has narrowed in America and reversed in Britain. Is that a warning signal? AMERICA’S economy is entering its eighth year of uninterrupted growth. The average upturn since 1945 has lasted for four years, so how much longer can the party last? Conventional forecasts produced by running numbers through complex economic models are notoriously bad at predicting recessions. Some economists reckon that a single indicator, the yield curve, can do a better job. A yield curve is a line drawn through the effective interest rates on government securities with different maturities. In normal times, this line slopes upward: long-term rates are higher than short-term ones, to compensate for the higher risks—mainly inflation—of investing for a longer period. The exact slope changes day by day, as investors spurn 30-year bonds or favour six-month notes. At present, the gap between yields on ten-year bonds and three-month bills is unusually small in America, while Britain’s yield curve slopes downward, with long rates lower than short-term rates. On past experience, this points to a sharp slowdown in America next year, and perhaps a recession in Britain. A simple measure which captures the shape of the yield curve is the “spread” between short-term and long-term interest rates. In America there has been a close link between yield spreads and economic growth (see chart ). As a rule, a large spread (ie, a steeply sloping yield curve) has signalled rapid growth a year or so later. A negative spread (an “inverted” yield curve with short-term rates higher than long-
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