A very important economic and financial indicator is the 3 month 10 year spread or 3-month 10-year curve, which is simply the difference between the 10-year US Treasury yield and the 3-month US Treasury yield. It is also referred to as 10y3m, 3m/10y, 10y-3m yield spread and so on, but “3 month 10 year” spread or “10 year 3 month” spread are the most common names. There are other yield curve spreads as well, including the most popular 2s10s spread.
Below is a chart of the US Treasury 3m-10y spread through time.
How is the 3 month 10 year spread calculated?
We can see how the US Treasury 3m10y spread is calculated below, by simply subtracting the 3-month yield (red line) from the 10-year yield (blue line).
What is the significance of the 3-month 10-year spread?
Historically, steep yield curves (indicated by a high 3m10y reading) are often followed by strong economic and financial market performance, while flat yield curves (indicated by low 3m10y readings) are followed by weaker performance.
Sometimes the yield curve flattens so much that it “inverts” and shorter-term rates are higher than longer-term rates (and the 3m10y reading goes negative). An “inverted yield curve” is typically seen as a warning sign as inverted yield curves are often followed by recessions. The gray bars in the above charts indicate recessions.
The 3m/10y spread has perhaps the best record of predicting recessions out of all of the yield curve spreads. Read our comparison of different spreads records in predicting recessions.
This measure even inverted prior to the 2020 recession and did not invert (and generate a false recession signal) in the 1980s or 1990s as some other yield curve spreads did. For these reasons, the 3m/10y curve is viewed as the most reliable yield curve spread indicator and is closely watched by the Federal Reserve. Learn more about why this spread precedes recessions.
However, in recent blog posts and press conferences, the Federal Reserve has begun focusing on the near-term forward yield spread (instead of the 3m10y curve) as a predictor of recessions and indicator of economic conditions.
How to track the 3-month 10-year curve?
You can find the 3m10y on many websites. My favorite website to track this spread through time is FRED (Federal Reserve Economic Data), which is published by the Federal Reserve Bank of St. Louis. The first chart (above) can also be found here.
Other yield curve spreads
There are many other yield curve spreads that market participants and policymakers monitor, such as the 2s10s and many others.