Image Source: PexelsWith December 31 data, here’s the picture of term spreads:
Figure 1: 10yr-3mo Treasury spread (blue), 10yr-2yr Treasury spread (red), both in %. Source: Federal Reserve via FRED, author’s calculations.Bull or bear steepening in the 10yr-3mo? Here’s daily data:
Figure 2: Change since June 1, 2024 in 10yr-3mo term spread (bold black), contribution to change from 10 year yield (blue bars), from 3 month yield (tan), all in percentage points. Source: Treasury via FRED, and author’s calculations.It’s the case that the majority of the disinversion since June 1st is due to the short rate falling, not the long rate rising.Using a specification incorporating the 3 month change in the spread, a probit model implies 61% probability of recession in 2025M04, compared to 31% using a spread only…More By This Author:What If? Thoughts On The No Excess Demand Scenario Revisiting The Relationship Between Debt And Long-Term Interest Rates Intra-industry Trade Estimated
