The yield curve data has surpassed its reputation of merely just being a simple predictor of economic growth. The rule behind its interpretation is simple such as when an inverted curve is displayed then it means a recession is about to happen after a year, and the yield curve inversions have proven reliable for each of the last seven recessions. The most recent recession predicted by the yield curve is the December 2007 recession. An inverted curve was shown in August 2006 and just months more than a year, the recession happened.
Other predictive slopes of this data include a flat curve which signifies slow growth and the steep curve which signifies fast growth. The yield spread between the ten-year Treasury bonds and three-month Treasury bills is a measure of slope that can be used to predict GDP growth. Predicting GDP growth is achieved by examining the yield spread values' history and GDP growth. You can evaluate the prediction and see the GDP growth one year in advance.
Though you can use yield curve data to forecast how high GDP's growth is, it is a bit weak in foretelling the actual number, mostly the case with recessions. In this case, you can utilize its attributes to forecast if the economy will or will not experience recession in the future.
Many experts advice not to take these numbers on GDP's forecast factually, since this forecast has a chance to be inaccurate, the same with the case of all statistical estimations. There are also researchers that claimed that the principal determinants of the present yield spread are diverse from the determinants that produced yield spreads in the past. Though that is the case, the yield curve data still contains valuable information that can be used for the analysis of market strategies and like most tools, they should be assessed carefully.
You can always use advance software tools to assist you in the analysis of this data to increase efficiency. These tools have features designed to cater all components of the yield curve, allowing you to save time when doing complex analysis. They are often built for convenience and won't require users to have knowledge in data spreadsheets manipulation and skills in programming. Some tools allow multiple yield curve charts to be viewed on a single page and the 3D graphics of these charts allow them to be viewed at different angles.
Evaluating yield curve data needs to be handled with care and there are always software tools available to make your job easier and faster. Though, sometimes complicated, an effective analysis of this data can prove very rewarding.
John Conejos is an experienced banker and finance specialist who also has knowledge in IT. He wants to share how he achieved success in his investments and trade using tools that can aid in analysis of market strategies. Now you will have better security in your investments by also being updated about future market events. Visit Derivative Trading Systems and make use of the tools that can help you react quicker to market alterations.
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