Think of the yield curve as a graph illustrating interest rates on US government bonds with varying maturity periods. Typically, it slopes
The hitch lies in this shift toward a steeper, or less inverted, yield curve. A soft landing is regarded as economic nirvana, where rate hikes alleviate inflationary pressures and nudge the economy toward optimal growth without necessitating further adjustments.However, the steepening yield curve is reducing the possibility of this idyllic scenario.
Anticipated outcomes can take unexpected turns, even when predictions ultimately materialise. Last weekend treated us to two of the most thrilling grand finals in Australian sports history. Both the AFL and rugby league matches were nail-biters, with lead changes happening until the final moments. The final results hung in the balance until the last sirens blared.
Similarly, the New York Federal Reserve calculates a monthly “probability of recession in the next year” index based on the slope of the yield curve. Before the recent shift in US bonds, the yield curve’s inversion was the most pronounced in over four decades, and the Fed’s model computed the probability of a recession at around 70 per cent.future, it’s a response to an expected growth shock or recession.