2-10 Spread Hits Two-Year High

One of the best economic forecasters isn’t a person, it’s a thing. I’m specifically referring to the yield spread between the two-year and ten-year Treasuries.

Over the last 30 years, the 2-10 spread has had a remarkable track record of predicting the economy. Whenever the spread becomes flat or negative — meaning the two-year yields more than the ten — that signals trouble for the economy.

Thanks to the Fed’s low interest rates, the spread has been positive. But due to the recent weakness in the long-end of the bond market, the spread has been growing wider. In fact, the 2-10 spread just hit a two-year high.

fredgraph12092013

Obviously, the Fed’s bond-buying is a factor. We also have to remember that stocks have done well, so higher yields in the Treasury bond market are needed to lure investors. Quietly, the markets expected better economic growth.

Posted by on December 9th, 2013 at 10:58 am


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