The Treasury yield curve continues to flatten, which is widely viewed as a warning sign for the economy. The 10-year/2-year spread fell to 59 basis points on Tuesday (Nov. 21), the lowest in a decade. But the US economic profile looks solid. The mixed messages have more than a few analysts and investors scratching their heads. For some perspective, The Capital Spectator chatted with Bob Dieli, an economist at RDLB, Inc., a boutique consultancy that publishes business-cycle analysis at

The Treasury yield curve has been flattening this year. History suggests that’s a warning sign for the economy. Yet a number of indicators show that business-cycle risk is quite low. The Chicago Fed National Activity Index for October, for instance, points to solid growth. Is the yield curve broken as a business-cycle indicator?

No.  I think its value as a leading indicator is still quite high.  But it has a record of giving false signals — the Long Term Capital Management episode, among others, for example. [The 10-year/2-year spread briefly inverted in mid-1998 but the next recession was still three years in the future.] What I am more concerned about is whether the current level of interest rates is accurately measuring the amount of total risk that investors are taking on.  Personally, I don’t think….