Interest Rate Spread
The interest rate spread between 10-year Treasury bonds and the federal funds rate represents the difference in yields between the long-term government debt and the overnight rate for interbank lending.
How It Works
This metric is regarded as an economic activity predictor. Conversely, a narrowing spread or flattening yield curve may indicate investor concerns about future economic conditions and could precede recession.
Recession Signal
The interest rate spread holds significance within the LEI (Leading Economic Indicator) framework because it reflects the yield curve and helps identify economic cycle turning points.
A normal upward-sloping yield curve, where long term rates exceed short term rates, correlates with positive future economic growth. An inverted yield curve, where long-term rates fall below short-term rates, has historically preceded economic recessions. It is not a sure signal. This spread was below zero on and off from November 2022 to October 2025, and NBER has not dated a recession since April 2020.