Yield Curve Inversion 2006
Based upon data provided by the United States Department of the Treasury, the graphic below presents the yield curve as of the evening of Wednesday, January 18, 2006.
The yield data since the first trading day of 2006 is presented below.
Important to note is that the data for January 18 shows a slight yield suppression. This may be the result of equities sell-offs that occurred in the stock markets of some countries and even affected stock prices in the United States during trading for the day. Investors reducing holdings of stocks to some extent move the proceeds from sales into the safety of government debt instruments; such demand pressure pushes bond prices up, causing yields to fall as a mathematical consequence.
The broader trend in the yield structure is evident, however. The yields on short maturity Treasury instruments are rising, whereas the yields on longer term instruments are easing. Without a marked change in this trend, a full inversion of the yield curve could be seen by this Spring, pointing to the possibility of recession by the fourth quarter of the year. This would, of course, put a downturn in U.S. economy right in the time frame of the November elections, thereby placing members of the ruling partyin this case, Republicansdirectly in the path of widespread voter dismay at the ultimate consequences of five years of absolute control by the party that could not manage to hold onto the federal budget surpluses, the peace and stability, or the respect for the rule of law of the last Administration.
The Dark Wraith will provide further information on the yield curve as it moves toward full inversion.