One Chart to Rule them All ~ 10Y/2Y and 10Y/3M Yield Spreads10Y/2Y and 10Y/3M Yield Spread
One chart to rule them all. I have combined the 10Y/2Y Yield Spread (purple line) and the 10Y/3M Yield Spread (blue line) onto one chart. You can get updated readings on it at anytime on my TradingView page (link in bio above)
I have measured the historic timeframe from un-inversion to recession for both datasets. Un-inversion occurs when the yield spread rises back above the 0 level.
Given the 10Y/2Y Yield Spread has just un-inverted (moved above 0), I thought this a worthy exercise. The findings are interesting and useful.
Main Findings / Trigger Levels
The findings are based on the last 4 recessions (this as far back as the 10Y/3M Yield Spread chart will go);
▫️ Before all four recessions both yield spreads un-inverted (only one has to date);
- At present only the 10Y/2Y yield spread has un-inverted (2nd Sept 2024), thus we can watch for the next warning signal which is an un-inversion of the 10Y/3M yield spread. Without both yield spreads un-inverting the probability of recession is reduced.
▫️ The 10Y/2Y typically un-inverts first and the 10Y/3M un-inverts second.
-Historically the delay between the 10Y/2Y and the 10Y/3M un-inversion is between 3 to 10 weeks (23rd Sept – 11th Nov). This is the date window that we can watch for a 10Y/3M un-inversion (based on historic norms).
-If we move outside this window beyond the 18th Nov with no 10Y/3M un-inversion, then we are outside the historic norms and something different is happening. Nonetheless watching for the un-inversion of the 10Y/3M after this date could be consequential.
▫️ On the chart I have used the last four 10Y/2Y yield spread un-inversion timeframes to recession and created a purple area to forecast these from the recent the inversion on the 2nd Sept 2024 forward (Labelled 1 - 4). This creates a nice visual on the
chart. Based on these historic timeframes and subject to the follow up 10Y/3M un-inversion confirming in coming weeks, the potential recession dates are as follows (also marked on chart);
1.28th Oct 2024 (based on 2000 10Y/2Y un-inversion to recession timeframe)
2.03rd Feb 2025 (based on 2020 10Y/2Y un-inversion to recession timeframe)
3.12th May 2025 (based on 2007 10Y/2Y un-inversion to recession timeframe)
4.25th August 2025 (based on 1990 10Y/2Y un-inversion to recession timeframe)
✅ Remember, you can check in on this chart and press play to get updated data at any time by clicking the link in the comments below or by following me on TradingView👍
▫️ I will include a table in the comments which outlines all of the above metrics with dates. I will also share a chart with a zoomed in version of present day so that all the above trigger dates can be more closely monitored.
Finally, it’s important to recognize that these findings and trigger levels are based on the last four recessions. There is no guarantee that a recession will occur or occur within the set trigger levels. What we have is a probabilistic guide based on historic patterns. This time could play out very differently or not play out at all. Regardless, all of the above findings help us gauge the probability of a recession with historic timeframes to watch. It leaves us better armed to make the necessary risk adjustments, particularly if the 10Y/3M yield curve un-inverts.
Price is king, and at present, prices are pressing higher on most relevant market assets. From the above findings and the current positive market price action, it appears we have a little more time before being hauled into a longer-term correction or recession. I lean towards the later dates (2, 3, and 4 above) for this reason. Interestingly, many of my historic charts from months ago and last year suggested Jan/Feb 2025 (also option 2 above) as a very high-risk period. You can view these charts under the above specific chart on TradingView.
This chart is your one-stop shop for checking recession trigger levels based on historic timeframes for both yield spreads. You can update this chart data anytime on my TradingView page with just one click. Be sure to follow me there to access a range of charts that will help you assess the direction of the economy and the market. Thanks again for coming along!
Remember, you can check in on this chart and press play to get updated data at any time by clicking the link in the comments below or by following me on TradingView.
Thanks
PUKA
