No registration required! (Why?)

Yield Spreads


Do you use yield spreads in your analysis? I believe it was the Cleveland Fed who gave the formula, GDP = One Year Forward (10 Year Note - 13 Week T-Bill). In Forex it's grown to be more of a benchmark than VWAP or MP in many other instruments. Although the 2 Year Bond is used in lieu of the the 91 Day T-Bill in the majority of op-ed pieces.

Another idea is the composite of a 2, 5 & 10 on a daily chart; each starting with the first value in an sma, then ema and finally a two period mean average of the composite. The spread of closes to the composite is the most efficient momentum and timing indicator I've happened across. I work with daily figures in a spreadsheet and compare lagged spreads to annualized GARCH for both annual spreads and day-to-day ranges. For the latter, I add percentages to square roots as many here would Fibonacci extensions.

In recent action a test of 65 ES appears imminent. From here to there though are perhaps many lost legs in MP; so we'll see.

One last aside: Self-importance adds to the mystery concerning hard-won set-ups but the truth is: when arbitrage traders decide on a direction, it doesn't matter which strategy you're using, they'll win the war. That besides, unless you're honing in on extra-sensory perception in contemplative introversion, the axiom 'Silence Is Golden' fell through.
Estimated recession probabilities for Probit Model using the yield curve spread:
(Recession Probability Percent) ............. (Spread Percentage Points)
5 ................. 1.21
10 ................ 0.76
15 ................ 0.46
20 ................ 0.22
25 ................ 0.02
30 ................ -0.17
40 ................ -0.50
50 ................ -0.82
60 ................ -1.13
70 ................ -1.46
80 ................ -1.85
90 ................ -2.40
The "spread percentage points" in the table above is the 90 day average. Basically, if the spread is 0.46 basis points, there is a 15% probability of a recession four quarters later.
http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/