Can the yield spread, which has been found to predict with surprising accuracy the movement of key macroeconomic variables of developed countries, also predict such variables for a developing country experiencing economic turmoil? This paper presents empirical results which suggest significant forecasting ability for the yield spread for segments of the Mexican economy during the 1995-1997 period of economic volatility. The actual and predicted variable changes sometimes conflict with those experienced by developed countries in part because of the unusually close relationship between the Mexican Treasury and the Banco de México. Consequently, analysts and policy officials may exploit the forecast potential of the yield spread, but only in the context of evolving institutional considerations (JEL O54, E44, F37).