danger, danger! yield curve flattening ahead!

[unblock]

the linked article includes a chart of the narrowing of the 10-year-to-3-month yield spread. with that trend, we're about 3 or 4 months away from an inverted yield curve, which usually spells RECESSION.

http://money.cnn.com/2005/06/03/news/economy/yield_slowdown/index.htm


Is the Fed to blame?
Fed Chairman Alan Greenspan has called the low long-term rates in today's environment a "conundrum." Some economists say part of the problem with the narrowing yield spread is due to the Fed's insistence on raising rates more than is justified by current economic conditions.

"The conundrum is the Fed, and why the it keeps raising rates," said economist Robert Brusca of FAO Economics.

But Greg Valliere of Stanford Washington Research Group, said the central bank is right to keep raising rates due to concerns about issues such as rising labor costs, which could lead to more inflation down the road, and the risks posed by a possible housing bubble.

Valliere thinks 10-year Treasury yields will start rising as soon as investors become convinced the Fed is not as close to abandoning its policy of rate hikes as now commonly assumed.