50% or more of all unpredictable movements in the slope (US terrm structure) ... are due to news shocks about future total factor productivity (TFP).

Excerpt of News Shocks and the Slope of the Term Structure of Interes Rate by André Kurmann

And Christopher Otrok. Basically explain why the slope of the term structure its a good predictors of future performance of the economy.

50% or more of all unpredictable movements in the slope over a 10-year forecast horizon are due to news shocks about future total factor productivity (TFP). A key driver of this result is the endogenous response of monetary policy. After a positive news shock, the Federal Funds rate, and with it the short-end of the term structure, falls. Since the reaction of the long-end of the term structure is small, the slope increases and only gradually returns to its initial value. The shock we identify therefore provides a uni fied explanation for a number of stylized facts: (i) variations in the slope are primarily due to fluctuations in the short-end of the term structure; (ii) steep yield curves (i.e. large slopes) generally predict future economic growth; and (iii) systematic monetary policy plays an important role for the linkage between macroeconomic and term structure dynamics.

For the macroeconomic variables the slope shock explains very little of variations in TFP, consumption and in inflation at short horizons. As the forecast horizon increases, however, the slope shock gradually accounts for a larger fraction of the movements in these variables. In particular, the shock explains more than 40% of the consumption

variation at a 20 quarter horizon and about 30% of TFP variations 40 quarters ahead (with this latter fraction increasing towards 50% for forecast horizons beyond 40 quarters).

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