Fed’s preferred recession indicator shows rapid decline similar to 2008

Published 04/04/2025, 12:20
© Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect

Investing.com -- This week, a key recession indicator favored by the Federal Reserve has shown a rapid decline, similar to the rate seen in 2008. This is viewed as the latest indication that bond investors are preparing for a significant economic slowdown due to the broad tariffs imposed by U.S. President Donald Trump.

The difference between two-year and 10-year Treasury yields, a measure often favored in the bond market, is not the preferred indicator for Fed Chair Jerome Powell. Instead, Powell is reported to prefer the spread between the yield on three-month Treasury bills and their expected yield in 18 months. This specific spread is believed to better reflect near-term rate expectations compared to the gap between two-year and 10-year Treasuries.

When there is a risk of recession, this spread tends to narrow and can even become negative. This phenomenon occurred following the Fed’s rate-hiking cycle that began in March 2022, which turned the spread negative and maintained it in that state due to high yields on T-bills.

On Friday, this spread reached minus 113 basis points, the most negative it has been since last October. Notably, it is on track for its largest single-day increase since the end of 2008, a period marked by the global financial crisis that significantly disrupted markets.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.