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"Sources of fluctuations in short-term yields and recession probabilities"

Article comes from the Federal Reserve Bank of Chicago

An inverted yield curve—defined as an episode in which long-maturity Treasury yields fall below their short-maturity counterparts—is a powerful near-term predictor of recessions.1 While most previous studies focus on the predictive power of the spread between the long- and short-term Treasury yields,2 Engstrom and Sharpe (2019) have recently shown that a measure of the nominal near-term forward spread (NTFS), given by the difference between the six-quarter-ahead forward Treasury yield and the current three-month Treasury bill rate, dominates long-term spreads as a leading indicator of economic activity.

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