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Are the inverted (Japanese style) governmental yield curves being a sign a recession/credit risk or should they be modelled as being due to a lack of liquidity? (...with such curves evolving into a normally/positively-shaped yield curve, having more negative values for shorter horizons)

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  • $\begingroup$ The reason no one has answered this question is that it contains too many extraneous details. You need to simplify it. $\endgroup$
    – John
    Sep 21, 2012 at 13:32
  • $\begingroup$ Thanks @John. Could you give your opinion now ? $\endgroup$
    – user7056
    Sep 21, 2012 at 16:13
  • $\begingroup$ To be honest, I still don't understand what you're asking. I doubt you'll see a significant yield curve inversion when the short-term yield is kept at 0%. I just pulled on the Japanese curve on BB and saw inversion at the end of 1990 when rates were high, but nothing recent. $\endgroup$
    – John
    Sep 21, 2012 at 17:40
  • $\begingroup$ @John, I do not know how to add pictures to this forum, but this type of curve is what I mean (except that it is also exsting for bond yields): creditwritedowns.com/2012/06/… $\endgroup$
    – user7056
    Sep 26, 2012 at 11:38
  • $\begingroup$ This is a site with real-time governmental bonds (for Switzerland): forexpros.com/rates-bonds/… $\endgroup$
    – user7056
    Sep 26, 2012 at 12:06

1 Answer 1

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1) JPY yield curve is currently upward sloping, not inverted...

2) Empirically, an upward sloping yield curve predicts recessions, not an inverted one. See this famous paper http://newyorkfed.org/research/current_issues/ci2-7.pdf

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  • $\begingroup$ Thank you a lot for the article-link @haginile. I'll edit the question, as you pointed on the June14 JPY curve. My question is about the JPY curve/inverted style, in general: will real market negative rates become more negative in1 year, and then inflect to positive values, or will they grow in magnitude and "stay" negative? $\endgroup$
    – user7056
    Jul 16, 2014 at 15:37

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