The Term Structure and World Economic Growth: A Retrospective and 30 Years of Out-of-sample Evidence

The inaugural issue of The Journal of Fixed Income led with an article by a junior professor at Duke University (me) who linked the slope of the yield curve—the difference between long-term and short-term yields—to future economic growth. Thirty years later, this article assess the out-of-sample performance of the yield curve indicator. Four recessions have come and gone since the original article was submitted to The Journal of Fixed Income in 1990. Each time the yield curve has inverted prior to the recession. This article also provides some additional background regarding the genesis of the idea.