In general, if yield curve is rising, bond prices should be expected to fall .But SS 16 R45 p82 suggests the opposite. '‘The premium on long-term bonds over short-term bonds tends to be coun- tercyclical (i.e., high during recessions and low at the top of expansions) because investors demand greater rewards for bearing risk during bad times. By contrast, short-term yields tend to be procyclical because central banks tend to lower short rates in an attempt to stimulate economic activity during recessions. Yield curves thus tend to become steeply upward-sloping during recessions, to flatten in the course of expansions, and to be downward sloping (inverted) before an impend- ing recession… ‘If the yield curve is unusually steep (i.e., if bond yields are high relative to cash equiva- lent yields), the outlook tends to be good for bonds. This relationship is signifi- cant when either cash yield or the inflation rate is used as a proxy for the underlying risk-free rate. This interpretation of steep yield curves is unconventional. The usual fear is that the forward curve7 foreshadows rising yields and falling bond prices. Empirical evidence tends to refute any basis for that apprehension.’’ Can someone help me understand how to read yield curve in recession. Any lights on yield and bond relationship ? Thanks.
Upward sloping is not the same thing as rising. If the yield curve is steeply upward sloping, that means that long-term bonds are yielding higher than they normally would with a flatter curve. The expectation is thus that the yield curve would flatten over time and bond prices would benefit.
From an economic standpoint Fiscal and Monetary policies would be expansive. This signals strength in the near future. Like monger said don’t mix up Steepness of yield curve and “yield curve rising”