‘OG’ Yield Curve Whisperer’s Fourth Horseman Of Recession Rode In On Wednesday
CAMPBELL HARVEY: I'm Campbell Harvey. I'm a professor of finance at Duke University. And in 1986, I published a thesis that detailed the predictive ability of the yield curve to forecast U.S. economic growth.
CARDIFF GARCIA: This was the seminal paper on this topic. Am I right?
HARVEY: It is the first paper.
GARCIA: (Laughter).
That's an excerpt from an August 2018 NPR interview with Cam Harvey, the "OG of yield curve whisperers."
Over the last six months, analysts, economists and armchair
Need credit spreads to widen for a recession, although the longer and harder the yield curve stays inverted the likelier that credit spreads will do so…
I’ve had an on-going question that I’m hoping some more “experienced” folks can answer. In 2006/2007, 2000, ’89, ’81, and ’79 was there such comprehensive and expansive coverage of the yeild curve inversion and that it presages a recession?
My assumption is that current market participants exist in a much more robust context of available information, which directly impacts how someone behaves – so, does the active observation of the inversion of the yield curve, and it’s historical meaning, impact how market participants act – and will they act differently than in other times of inversion? And if that’s the case, how does that impact interpretations of the yield curve moving forward?
@Jbona3 my understanding is that public interest in the yield curve’s predictive ability really gained traction after the financial crisis in ’08. The thesis was published in ’86, and I don’t think it was really a topic of discussion prior to that. I’ve heard that leading up to the ’89, ’00, and ‘The Great Recession’, there was more of the ‘here’s why this time is different’ attitude prevailing rather than a ‘lets keep an eye on this’ kind of thought process.
Your assumption is well grounded, but I don’t think that we have a good understanding of how the attention given to it could affect the behavior of market participants. One thing to keep in mind, though, is that even though the yield curve is focused on the US macro-economic environment, it’s sourced globally (because governments, corporations, and individuals around the world are also buying US treasuries) and in that way it sort of becomes a global sentiment analysis. I.e., it’s almost a measure of confidence based on billions of inputs around the globe. So, trying to parse how those billions of participants will react to the knowledge of what’s potentially in the pipeline becomes understandably convoluted.