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The slope of the yield curve is considered a leading economic indicator. A yield curve plots the relationship between the yield-to-maturity and the term to maturity of a bond (Bodie, Kane, & Marcus, 2013, p. 322). The curve presents the term structure of interest rates and, therefore, presents a view of the expected movement of interest rates. Such future views allow for economists and monetary authorities to predict the movements of the economy. Therefore, the yield curve is a leading indicator because it is indicative of an economic variable that changes before the actual cyclical change occurs.
Reference
Bodie, Z., Kane, A., & Marcus, A. J. (2013). Essentials of Investments. New York: McGraw-Hill/Irwin.
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