The 2/10 Spread

I’m not exactly sure why, but the spread between the two- and ten-year Treasury bonds seems to have a very good track record of predicting recessions.

Notice how the spread goes negative in the months before official recessions (the grey bars). That’s a track record that many economists would envy.

The spread between the two and ten is still wide although it has narrowed over the past several weeks. Still, we’re a long way from the danger zone. That’s why I’m a Double Dip doubter. A recession, of course, will come along eventually, but this point combined with other data (like the ISM) tells me that a Double Dip recession is unlikely in the immediate future.

Posted by on September 22nd, 2011 at 3:52 pm

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