Starting with the update on June 21, 2019, the Treasury bond data used in calculating interest rate spreads is obtained directly from the U.S. Treasury Department (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). Series is calculated as the spread between 10-Year Treasury Constant Maturity (BC_10YEAR) and 2-Year Treasury Constant Maturity (BC_2YEAR). Both underlying series are published at the U.S. Treasury Department (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).
Why This Matters
Yield curve inversion (negative spread) has preceded every U.S. recession since 1950s, making it the most reliable recession predictor. Normal upward-sloping curve reflects higher long-term rates. Inversion suggests investors expect economic slowdown and Fed rate cuts. Zero or negative values warrant close attention for recession timing.
Trading Implications
Yield curve inversions (negative values) have preceded every recession, making this the most reliable recession indicator for defensive positioning. Values below 0.5% suggest late-cycle conditions favoring value over growth. Steep curves above 2% indicate economic expansion and benefit banks/financials. Day traders watch for rapid steepening/flattening as policy expectations shift.
Data Details
- Frequency: Daily, Not Seasonally Adjusted
- Units: Percent