GDP growth and the yield curvature

•The yield curvature predicts future GDP growth in-sample and out-of-sample.•The yield curvature compares favorably to benchmark GDP growth predictors.•The yield curvature also predicts bond returns.

This paper examines the forecastability of GDP growth using information from the term structure of yields. In contrast to previous studies, the paper shows that the curvature of the yield curve contributes with much more forecasting power than the slope of yield curve. The yield curvature also predicts bond returns, implying a common element to time-variation in expected bond returns and expected GDP growth.