As of today’s close, the constant maturity 10yr-3mo spread is … 0%.
Figure 1: 10yr-3mo Treasury spread (blue, left scale), 10yr-2yr Treasury spread (red, left scale), both in %; VIX at close (green, right scale). Source: Treasury, CBOE via FRED.
In the wake of the term spreads failure (so far) to predict the recession of 2024-25, I’m not sure what to make of this. However, when combined with the measured collapse in expectations registered in the U.Michigan and Conference Board surveys, this all hints at a fast deterioration in perceived economic trajectory.
Addendum:
Weekly macro indicators for data available through 2/15.
Figure 2: Lewis-Mertens-Stock Weekly Economic Index (blue), and Baumeister-Leiva-Leon-Sims Weekly Economic Conditions Index for US plus 2% trend (brown), all y/y growth rate in %. Source: NY Fed via FRED, WECI, accessed 2/25, and author’s calculations.
Tanking the stock market, increasing unemployment and killing consumer sentiment. You can’t say that Trump isn’t doing his best to fight inflation.
Might put a dent Bessent’s 333 plan, though.
Off topic – Is everybody spineless now?:
https://www.npr.org/2025/02/25/g-s1-50551/joy-reid-msnbc-fired
What’s the point of MSNBC, anyway? Why should I ever tune in, ever again, if an effective black, female voice is unwelcome there? If any strong view is filtered out, what’s the point? Cowards.
What’s driving the turn toward inversion?
Priced-in inflation expectations have come down since January:
https://fred.stlouisfed.org/graph/?g=1DZ9P
That’s quite the opposite of what’s happening in consumer surveys of inflation expectations. A fall in priced-in inflation risk does seem consistent with rising recession risk.
The divergence between 5-year and 10-year inflation expectations has widened considerably since the election and somewhat since January. That, too, is consistent with a near-term recession.
A month ago, priced-in expectations for the year-end funds rate were pretty evenly split between a reduction of 25 basis points and 50 bps. Now, pricing centers on a 50 bp cut. As of February 21, term premium on the 10-year had come down about 18 bps since the end of January.
So expected funding costs, priced-in inflation and term premium have all worked to flatten the curve lately, all consistent with rising recession risk.