10 Year - 3 Month Treasury Yield Spread

The difference between long-term and short-term interest rates (i.e. "the slope of the yield curve" or "the term spread") has borne a consistent negative relationship with subsequent real economic activity in the United States, with a lead time of about four to six quarters. The measures of the yield curve most frequently employed are based on differences between interest rates on Treasury securities of contrasting maturities, for instance, ten years minus three months (the dashed line in the chart below). This metric has been found to be consistently predictive of real economic activity including GNP and GDP growth, growth in consumption, investment and industrial production, and economic recessions as dated by the National Bureau of Economic Research (NBER).