The nominal yield curve describes the return (interest rates) of bonds having equal credit quality but differing maturity dates, typically ranging from three months up to thirty years. It is a stylized fact that the shape of the yield curve is related to the probability of an incoming economic recession. A standard yield curve is one in which longer-maturity bonds have a higher yield than shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term returns are higher than the longer-term ones, which can signify an upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close, which also predicts an economic transition. The functional time series illustrated here shows the yield curve from June 1961 to December 2021. We can appreciate interesting periods of the economy, like the high interest rates from the 1980’s to fight high inflation, as well as the lower bound period, after the 2008/2009 financial crisis.
Instructions: Use your smartphone(newer iPhones work best) camera to open the Augmented Reality (AR) Code by pointing the camera at the AR code and clicking on the yellow “Adobe Aero” tab (without downloading any apps.) It is only necessary to give Adobe permission to access your phone (just like accessing a QR code.) Click on the blue “Continue” tab when it appears. To land the image find a flat open area and click the gray dots that appear on your phone covering the flat surface. Once you have anchored the image you can now walk around it viewing from all sides from your phone.
Contributors
John Flory
Fabio Gómez-Rodríguez, Ph.D.
Stanislav Li
