Tuesday, December 27, 2005
The Bloomberg article shows five inversion periods since 1980. A masters thesis I just supervised supports Greenspan's view -- the yield spread's predictive powers have diminished since the 1970s. James Hamilton thinks differently.
Bear Stearns Cos. expects any inversion to last ``several'' months, according to David Boberski, head of interest rate strategy at the New York-based firm.
``It will stay inverted until it's clear we're at the peak of the business cycle and rate hikes are done,'' Boberski said Dec. 20. ``Whether we're coming up to that peak in the next few quarters is unclear.''
An inversion would still likely be viewed as an ``ominous sign'' for the economy and be followed by an economic slowdown, or even a recession, said Tony Crescenzi, a bond strategist at Miller, Tabak & Co. in New York.
He wrote a book called ``The Strategic Bond Investor'' and taught classes on the bond market at Baruch College's executive MBA program.
Fed Chairman Alan Greenspan said in congressional testimony in July that there is ``a misconception'' of the importance of the yield curve. The curve's ``efficacy as a forecasting tool has diminished very dramatically.''
David Altig looks at Fed Funds futures markets and thinks the Fed may be done raising short-term rates. Are they moving to neutral too late to avoid a recession later this year? Our new Quarterly Business Report from SCSU shows local businesses are pretty optimistic that 2006 will start off strong. I don't think this inversion is a sign of an upcoming recession ... but it bears watching.