Treasury & Rates Regime Monitor

The yield curve (10Y − 3M) and the high-yield credit spread — the bond market's two clearest recession and stress gauges. The pills below read the curve regime; credit is tracked in the readings and its own component.

Normal10Y > 3M

Flat≈ 0

Inverted10Y < 3M

▸ Regime definitions & method

Normal · upward (spread > 0) — long rates above short rates; investors are paid a term premium to lend longer. The healthy, expansionary state.

Flat (spread ≈ 0) — short and long rates converge, usually after the Fed hikes short rates up toward long. A transitional, uncertain state.

Inverted (spread < 0) — short rates exceed long; the market expects the Fed to cut as growth slows. The strongest recession warning, leading downturns by 6–18 months.

Credit (HY OAS) — the extra yield over Treasuries on junk corporate bonds; the market's live default-risk gauge. Complacency < 3% (late-cycle, risk mispriced) · Tight 3–3.5% · Elevated 3.5–5% · Stressed > 5%.

Current readings

10Y − 3M Spread

—

percentage points

HY Credit Spread

—

option-adjusted, %

Credit Regime

—

Components · inputs

10-Year & 3-Month Yields

The two rates that form the curve. Where the 10-year drops below the 3-month, the curve is inverted — those stretches are shaded.

HY Credit Spread (BAMLH0A0HYM2)

Corporate default-risk gauge. Dashed lines mark the 3% / 3.5% / 5% regime boundaries; below 3% is late-cycle complacency, not safety.

Synthesis · the signal

10Y − 3M Spread — Inversion Tracker

The two yields combined into one signal. Everything below zero is an inversion; sustained episodes are shaded and flagged ▸ at onset. Inversion is the recession-precursor signal.

▸ Inversion episodes (10Y − 3M < 0, sustained ≥ 5 days)

#	Start	End	Days	Max Depth

Splitting the nominal 10-year yield into its two prices — real rate + breakeven inflation — to see what is actually driving yields. The pills read whether inflation expectations are anchored.

Subdued< 1.5%

Anchored1.5–2.5%

Running hot> 2.5%

▸ Regime definitions & method

Subdued breakeven < 1.5% — expectations below target signal weak demand or deflation risk; recession-adjacent and hard for policy to fix near the zero bound.

Anchored 1.5–2.5% — expectations near the Fed's 2% target; the market trusts policy. Yield moves are driven by the real rate, not inflation fear.

Running hot > 2.5% — inflation priced persistently above target; pressures the Fed to stay restrictive and a headwind for long-duration assets.

Real rate (DFII10) — the inflation-adjusted yield and the discount rate on all risk assets. Stimulative < 0% · Neutral 0–1% · Restrictive > 1%. A fast move — |Δ90d| ≥ 0.4pp watch, ≥ 1.2pp shock — reprices risk premia violently (cf. 2022).

Nominal 10Y = Real Rate (DFII10) + Breakeven Inflation

Breakeven = DGS10 − DFII10. Velocity = real rate today − real rate 90 days ago.

Current readings

Breakeven Inflation

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10Y expected, %

Real Rate (10Y TIPS)

—

DFII10, %

Nominal 10Y

—

DGS10, %

Components · the two prices

Breakeven Inflation

The market's 10-year inflation forecast. Dashed lines mark the 2% target and the 1.5% / 2.5% regime boundaries.

Real Rate + Shock Detector

Real rate level (left, solid) with its 90-day velocity (right, dashed). Velocity thresholds mark the ±0.4 watch / ±1.2 shock lines; the amber band is the fastest surge in the sample.

Synthesis · how they sum to the yield

Nominal 10Y Decomposition — Real Rate + Breakeven

Stacked: the real-rate band (bottom) plus the inflation band (top) sum to the nominal 10Y (dark line). Watch which band is driving yields — inflation fear is the worry, real-rate-led moves are healthier.

The Fed's policy rate, where it sits versus the market, and which way it is moving. The pills read the stance gap (Fed funds minus the 3-month market rate).

Behind the curvegap < −0.5

Neutral±0.5

Restrictivegap > +0.5

▸ Regime definitions & method

Behind the curve gap < −0.5 — the 3-month market rate sits above Fed funds; the market is pricing further hikes and the Fed may be lagging. An early-tightening signal.

Neutral −0.5 to +0.5 — Fed funds tracks the market; policy roughly in line with expectations, no strong pressure priced.

Restrictive gap > +0.5 — Fed funds above the market rate; policy is holding tight and the market is pricing cuts ahead. Typically late-cycle.

Stance Gap = DFF − DTB3 · Direction = DFF_today − DFF_{90d ago}

Positive gap = Fed above market = restrictive (easing expected). Direction: rising = hiking, flat = hold, falling = cutting.

Current readings

Fed Funds (DFF)

—

effective rate, %

Policy Gap (DFF − 3M)

—

positive = restrictive

Direction (90d)

—

Components · inputs

Fed Funds vs. 3-Month Market

The policy rate the Fed sets against the 3-month T-bill the market trades. Where the market line sits above Fed funds, hikes are priced; below, cuts.

Policy Stance Gap (DFF − DTB3)

Positive = restrictive (easing expected); negative = behind the curve (hikes expected). Dashed ±0.5 lines mark the regime boundaries; the dot marks today.

Synthesis · direction of travel

Fed Funds Level & 90-Day Direction

Fed funds level (left, solid) with its 90-day change (right, dashed). Sustained positive velocity is a hiking cycle; sustained negative is a cutting cycle; flat is a hold.

A quantity-side cross-check: real industrial output (INDPRO), confirming or contradicting the price signals. The pills read year-over-year growth — the contraction gauge.

ContractingYoY < 0%

Slowing0–1.5%

Expanding> 1.5%

▸ Regime definitions & method

Contracting YoY < 0% — output shrinking year-on-year; the real economy is in contraction. When this confirms a stressed price-side read, the recession signal is no longer just a forecast.

Slowing 0–1.5% — growth positive but fading; the zone where price-based warnings begin to show up in the hard data.

Expanding > 1.5% — healthy output growth; the real economy is absorbing financial conditions.

INDPRO is monthly and released with a lag, so it confirms slowly — by design. It is a coincident-to-lagging check on the leading, daily price signals, not a substitute for them.

Current readings

Industrial Production

—

index, 2017 = 100

YoY Growth

—

% vs. 12 months ago

Activity Regime

—

Components · inputs

Industrial Production — Level

The raw index of factory, mine and utility output. The long-run uptrend; recessions show as visible drawdowns.

Short-Term Momentum (3M annualized)

The near-term pace of output, annualized. This leading view turns down before year-over-year growth does; the zero line is the contraction boundary.

Synthesis · the contraction detector

Industrial Production — Year-over-Year Growth

Trailing-year growth — the headline recession gauge. The zero line is the contraction boundary; the +1.5% line marks expanding / slowing. Stretches below zero are shaded (note the 2020 collapse).