Yield Curve Inverts (10Y - 3M)
The Fed's preferred recession signal
The 10Y-3M spread is the yield curve measure favored by the Federal Reserve's own research. It has a slightly better track record than 10Y-2Y, with zero false positives since 1968.
| Date | 1M return | 1Y return | 5Y return |
|---|---|---|---|
| 1982-02-01 | -5.8% | +22.7% | +128.9% |
| 1989-03-27 | +5.6% | +16.1% | +62.1% |
| 1998-09-10 | +0.4% | +37.9% | +5.0% |
| 2000-04-07 | -6.9% | -25.0% | -24.6% |
| 2006-01-17 | -0.2% | +11.2% | +0.9% |
| 2007-07-20 | -5.8% | -17.9% | -10.3% |
| 2019-03-22 | +4.8% | -20.1% | +86.3% |
| 2022-10-18 | +6.4% | +15.0% | — |
| 2025-02-26 | -4.4% | +15.5% | — |
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
Unlike the 10Y-2Y (one false positive in 1998), the 10Y-3M has correctly predicted every recession since 1968 with no false alarms. The Fed uses this variant in its own probability models.
Because the 3-month T-bill tracks the Fed Funds rate closely, inversion of 10Y-3M directly reflects the market's view that the Fed is too tight relative to future growth expectations.
A brief, shallow inversion (1998-type if it occurred) suggests a soft landing is possible. A deep, prolonged inversion (2006-07, 2022-24) suggests more significant economic slowing.
Respect the track record — no false alarms since 1968 — but let depth and duration set your urgency, since shallow, brief inversions have pointed to milder outcomes than deep, prolonged ones. Preparation beats exit here: confirm near-term spending doesn't depend on selling stocks, and hold equity targets steady while the long lag plays out.