Yield Curve Update

It seems that we can now move beyond talking about a flat yield curve to talking about a truly inverted yield curve:

Yield curve inverts after strong auction

NEW YORK (MarketWatch) — The Treasury yield curve turned completely upside down early Friday, pushing the 2-year yield above the yields of both the 10-year and 30-year instruments, intensifying a debate over whether the inversion signals a looming recession.

The inverted yield curve effectively undermines the incentive for making long-term loans.

Long-term yields are being pushed lower by intense demand that has led to higher prices for longer-maturity bonds, following Thursday’s highly successful auction of 30-year bonds, the first sale of these maturities since 2001.

Given that this morning the 30-year yield is 4.48%, the 10-year yield is 4.52%, the 2-year yield is 4.63%, and the 6-month T-bill yield is 4.67%, I guess that fairly qualifies as a modestly, but fully inverted yield curve. I stand by my earlier assessment that this is a Not-Very-Good-Sign for the economy in 2006.