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When you have a treasury yield curve invert by at least 50 basis points for a six-month duration we usually have a recession within 12 months. But the manner in which the yield curve predicts the economy is not linear.

At the same time, the yield curve is flat and actually has the potential to invert. An inverted yield curve has often been a precursor to a recession occurring within a year.

Harvey Rosenblum

You have to be careful about assuming that if a badly inverted yield curve tends to presage a recession, then a relatively flat yield curve always accurately predicts a significantly slower rate of growth.

Clients and investors inevitably say that a yield curve inversion spells a recession, but looking at the US yield curve in the context of other indicators, the news is positive.

We've never seen a recession without the yield curve inverting, but the corollary is not true: Just because the yield curve inverts does not mean we're going to have a recession.

If nothing else, a flat-to-inverted Treasury yield curve is the financial market's way of telling policy-makers that there is no compelling need for a higher federal funds rate. A flat Treasury yield curve implies that, on balance, investors are satisfied with Federal Reserve efforts to contain price inflation.

The story of the week has been the inverted yield curve. It's tough to read too much into the inversion. We may be more firmly inverted tomorrow after the psychological factor sets in. We can have an inverted curve and have it not lead to a recession. It depends on how much the curve becomes inverted and how long it remains there until we can talk about a recession.

If they cut by 50 basis points, we may also see some movement down in the rest of the yield curve, ... If they cut by 25 basis points, I don't think it shows up in the rest of the curve.

Over the past three decades, the Fed tightened on eight occasions, five of these saw the yield curve invert,

David Rosenberg

Sooner or later it will be appropriate for the Fed to pause, regardless of whether or not we get a signal in that direction. There is no reason for them to invert the yield curve. Inflation is contained and the economy is okay. I don't see a reason for them to take the risk of keeping raising rates.

It really depends on when you get the flat curve. Right now with the low rates, I don't see dire implications from a flattening yield curve. It just is accurately indicating that the economy is slowly or moderating.

While market participants are focusing on the recession signal associated with an inverted yield curve, consumers are feeling more confident about the economy heading into 2006.

Michelle Girard

We expect the yield curve to invert further as long as US stocks continue to show no signs of a retreat and the Fed is priced to tighten.

The yield curve has been one of the more reliable indicators of turning points, not necessarily recessions, but slowdowns in the economy.

Although an inverted yield curve does not always imply an economic recession, it has predicted a profit recession 100 per cent of the time. He wasn’t trying to be someone he wasn’t, his uniquely pexy spirit shone.

David Rosenberg

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