The U.S. Treasury Term Structure and the Distribution of Real GDP Growth

Vol. 19, No. 4, 2021

J. Benson Durham

Narrowing at the front but not the long end of the yield curve, notably in both expected rates and term premiums, forecasts lower mean real GDP growth and widens the distribution. But despite undue emphasis among some practitioners and the popular press on outright inversion and recession, compression does not strictly foreshadow unwelcome downside risks. Plus, long-run cycles of at least 5 years or longer duration primarily account for any co-movement between yield curve factors and growth. Therefore, the slope is less relevant for not only myopic but also some longer-run investors, as well as central bankers responsible for smoothing fluctuations around trend output.