John Mauldin notes:
"The yield curve became more inverted this week, with the negative differential between the 3-month and the 10-year at -49 basis points and a -76 basis point differential between the 10-year and the Feds fund rate. According to a Fed paper, that level of an inversion suggests there is now an over 40% probability of recession next year. This same model only predicted a 50% chance of recession in 2000, and as the paper authors acknowledge, the model probably understates risk in recent decades."
The yield curve and interest-rate data looks like this:
So the question for those who believe markets are future discounting mechanisms: Which market are you going to believe: Stocks or Bonds?
Honey, I Created A Bubble
Investor Insight, November 10, 2006