The Wood and Fiber Supply Chain Experts
Accuracy of Forest2Market Forecasts
From the May 2009 Forest2Mill newsletter.
In March 2007, Forest2Market economists Mike Huebschmann and Tom
Montzka warned that the inverted Treasury yield curve at that time was signaling a likely recession
within four calendar quarters.
According to Huebschmann and Montzka, “The yield curve is the slope of the line between
short- and long-term interest rates. Most of the time the yield curve has a positive slope because
longer-term investments (e.g., two- to 30-year bonds) normally command higher interest rates
than short-term investments (e.g., three- and six-month T-bills). However, every so often – as
was the case between late 2006 and early 2007 (Figure E1) – the yield curve inverts as investors
foresee higher risk levels in the short run. Based on historical correlations, the risk of
recession increases as the 10-year yield drops against the three-month yield.” Three quarters
later, in December of 2007, we were in recession.
U.S. Treasuries with maturity dates ranging from three
months to 30 years (line chart); and the magnitude of
change from the yields 15 minutes previous (bar chart).
Source: Bloomberg.com
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