Yield curve spread
Curve spread
What it is
Gap between yields of bonds at different maturities — typically 10-year minus 2-year (10Y-2Y), or 10-year minus 3-month (10Y-3M). Indicator of yield curve "slope". When the spread is negative, the curve is INVERTED.
How to read it
An inverted curve (spread < 0) historically precedes nearly all US recessions with 6-24 months of lag. A normal curve (spread > 0) signals a healthy expanding economy. The 10Y-3M is considered the most reliable signal by the NY Fed.
Common reference points
- Healthy curve — expansion> 1.5%
- Flattening — caution0 to 1.5%
- Inverted — recession risk< 0%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
The inversion signal works, but the LAG varies enormously (6 months to 2 years). And it's often at the RE-steepening (move from negative to positive) that the recession actually arrives — not during the inversion itself.
Other measures — Macro — rates
Educational content. Polaris is not a registered investment adviser and makes no recommendation.