Homrich & Berg sees 3M10Y yield curve spread signaling low recession risk over next year
TLT•Homrich & Berg said the 3M10Y Treasury spread widened to 120 basis points, signaling low recession risk over the next year, while the 2Y10Y spread narrowed to 20 basis points in September.
1. Diverging curve signals
Homrich & Berg flagged a sharp divergence in Treasury curve signals: the 2Y10Y spread narrowed to 20 basis points in September, while the 3M10Y spread widened to 120 basis points. The firm said the 3M10Y configuration points to low recession risk over the next year.
2. Recession gauge
The analysis said 3M10Y has historically been a cleaner recession-timing gauge than 2Y10Y, with fewer false alarms. It also highlighted a 3M10Y-under-2Y10Y cross as a confirmation tool; the related 3M2Y spread is widening, not inverting.
3. Policy conditions
Curve pricing implies policy is not yet restrictive for growth, the analysis said, though the two-year outlook suggests additional hikes could push conditions toward too tight.
