bonds

Surprise 2! Positive yield curves haven't always been positive for the economy

Readers of my diaries probably know that I consider the bond market to be one of the most solid indicators of what lies ahead for the economy. In fact, the stock market is a leading economic indicator, and the bond market leads even that.
In 2006 and 2007 the bond market went into a mild inversion, i.e., interest rates on short term bonds were higher than rates on long term bonds. This is a historically accurate indication of recessions about 12 months further out. It does appear that we have dutifully slipped into recession in the early part of 2008 (although we may not "know" it officially until the final revisions to economic numbers is made official - several years from now!)

The Bond Market fears Deflation

This may seem like a strange title for an article in a world where gold is over $1000 an ounce and oil is at $110 a barrel, causing people like my buddy bonddad to write articles entltled, "What Inflation?", and this is somewhat a response to his latest post,
Why Isn't the Bond Market Selling Off From Inflation Fears?.

The very best analysis of the issues in our new economic world was recently set forth, imho, by Prof. Bred DeLong, who described 3 types of crises:

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