Key Indicator Points to a Long Slump

Yield curve predicts slow recovery in developed economies as credit remains tight
By Jim O'Neill,  Newser User
Posted Nov 5, 2008 11:38 AM CST
Robert J. Tuccillo Jr. of Bear Wagner Specialists looks at a monitor on the trading floor of the New York Stock Exchange, Monday, Sept. 15, 2008.   (AP Photo/David Karp)
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(Newser) – A little known—but closely followed—indicator that contrasts the differences in yield between 2- and a 10-year government securities suggests the economic downturn in the developed world is likely to hang around a lot longer, reports the Wall Street Journal. Yield curves generally are narrow when the economy is strong and widen as economies sour.

Experts expect the current yield curve, already relatively wide, to broaden further as governments chop short-term interest rates. Generally a steep curve is good for banks: They borrow cheap money and loan it at higher rates to customers. But the credit crisis has banks holding onto their cash, stalling any potential recovery.