Sovereign Bond Spreads as a Predictors of Gross Domestic Product Growth in North America
Sovereign Bond Spreads as a Predictors of Gross Domestic Product Growth in North America

Author(s): Jana Hvozdenská, Veronika Kajurová
Subject(s): National Economy, Economic policy, Comparative politics, Economic development
Published by: Masarykova univerzita nakladatelství
Keywords: GDP prediction; yield curve; slope; spread;
Summary/Abstract: The yield curve - specifically the spread between long term and short term interest rates is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead. The steepness of the yield curve should be an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve as well as to slow real growth the near term. This paper aims to analyze the dependence between slope of the yield curve and an economic activity of countries of North America (Canada, Mexico, the United States of America) between the years 2000 and 2014. The slope of the yield curve can be measured as the yield spread between sovereign 10-year bonds and sovereign 3-month bonds.

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