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There is a 1 bps spread between the 3-year and 5-year US Treasury (2.84 vs 2.83) as of close of market today. While somewhat noteworthy, it's not huge (yet). W

by gibybo 8y ago

There is a 1 bps spread between the 3-year and 5-year US Treasury (2.84 vs 2.83) as of close of market today. While somewhat noteworthy, it's not huge (yet). When people talk about yield curve inversion and it being an indicator of recessions, it's much more common to compare the 2-year with the 10-year. Currently that sits at 2.83 (2yr) vs 2.98 (10yr). While the shorter spreads do often invert first, there is no requirement for the longer spreads to follow.

acdanger 8y ago
Here's a graph plotting the 10 vs 2 year spread: https://fred.stlouisfed.org/series/T10Y2Y https://fred.stlouisfed.org/series/T10Y2Y
- Obi_Juan_Kenobi 8y ago
  Going off of that graph, we could 'bounce' and remain at non-inverted levels for a few more years as in 1995. But once the rates truly are inverted to a substantial degree, a recession generally follows within a couple years.
  - freehunter 8y ago
    1995 was special, though, since that was the start of the Dotcom boom. Every year after 1995 and before 2000, the Dotcom bubble got bigger and bigger. To bounce like 1995, we'd need an economy like 1995.
sdinsn 8y ago
> While the shorter spreads do often invert first, there is no requirement for the longer spreads to follow. I mean, there's no "requirement", but historically their movements correlate with each other closely with a small amount of offset.
- gibybo 8y ago
  Sure, but I guess what I'm trying to say is that the probability of the longer spreads inverting based on this is nowhere near 100%. A tiny amount of good news in the market tomorrow will probably reverse this short term spread inversion. Bad news will likely make it worse, but it's not really at a level yet where it's indicating much yet imo.
nabla9 8y ago
For 10-year vs 3-month Treasury bond rate average time from inversion to recession start since 1969 is 12 months (SD 3.83) source: https://en.wikipedia.org/wiki/Yield_curve https://en.wikipedia.org/wiki/Yield_curve
nzealand 8y ago
Cleveland fed uses that spread to predict GDP Growth (2%) and probability of recession (20%) https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx https://www.clevelandfed.org/our-research/indicators-and-dat...

by gibybo 8y ago

acdanger 8y ago

Here's a graph plotting the 10 vs 2 year spread: https://fred.stlouisfed.org/series/T10Y2Y https://fred.stlouisfed.org/series/T10Y2Y

Obi_Juan_Kenobi 8y ago
Going off of that graph, we could 'bounce' and remain at non-inverted levels for a few more years as in 1995. But once the rates truly are inverted to a substantial degree, a recession generally follows within a couple years.
- freehunter 8y ago
  1995 was special, though, since that was the start of the Dotcom boom. Every year after 1995 and before 2000, the Dotcom bubble got bigger and bigger. To bounce like 1995, we'd need an economy like 1995.

sdinsn 8y ago

> While the shorter spreads do often invert first, there is no requirement for the longer spreads to follow. I mean, there's no "requirement", but historically their movements correlate with each other closely with a small amount of offset.

gibybo 8y ago
Sure, but I guess what I'm trying to say is that the probability of the longer spreads inverting based on this is nowhere near 100%. A tiny amount of good news in the market tomorrow will probably reverse this short term spread inversion. Bad news will likely make it worse, but it's not really at a level yet where it's indicating much yet imo.

nabla9 8y ago

For 10-year vs 3-month Treasury bond rate average time from inversion to recession start since 1969 is 12 months (SD 3.83) source: https://en.wikipedia.org/wiki/Yield_curve https://en.wikipedia.org/wiki/Yield_curve

nzealand 8y ago

Cleveland fed uses that spread to predict GDP Growth (2%) and probability of recession (20%) https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx https://www.clevelandfed.org/our-research/indicators-and-dat...