U.S. Treasury Yield Curve Signal

Signal Summary:

• Configuration statement: Given a Yield Spread of 0.30% exceeding its 3-month Trend of -0.023%, this setup aligns with Downward-biased price paths and Normal volatility, where the dominant risk is Regime shift, not Trend continuation. (1)
• The signal is currently in a Bearish regime, reflecting a shift away from the prior Bullish/Inversion state. (1)
• Conviction Band: Medium; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Improving; Threshold Proximity: Moderate; Revision Sensitivity: Moderate. (1)

Methodology Applied:

• A Bearish regime is triggered when the Yield Spread (GS10 - FEDFUNDS) exceeds 1.5% or moves above its 3-month Trend. (1)
• A Bullish regime (recession risk) is defined by a Yield Spread at or below 0%. (1)
• Economic interpretation: Measures the gap between long-term growth/inflation expectations and monetary policy tightness. (1)
• U.S. Treasury Yield Curve Signal dataset, latest observation: 2026-01-01. (1)

Key Dynamics:

• The primary driver is the positive Yield Spread (0.30%) maintaining position above the declining 3-month Trend. (1)
• The signal shows stabilisation in Bearish territory after three consecutive months of non-inverted readings. (1)
• Conditional Invalidation: The spread falling below 0% or dropping back below the 3-month moving average trend. (1)
• Persistence is noted as the regime successfully transitioned from a volatile 2025 mid-year period to a sustained Bearish stance. (1)

Scenario Balance:

• Dominant base case: Continued Bearish regime as long as long-term yields remain above the Fed Funds Rate.
• Upside risk: A sharp steepening toward the 1.5% threshold triggered by rising inflation expectations or term premia.
• Downside risk: Re-inversion (Bullish flip) if policy tightness (FEDFUNDS) overwhelms growth expectations (GS10).

Time Horizon & Aggregation:

• Time Horizon: Cyclical (months) based on the 3-month trend logic and the 6-18 month lead time for recession risks. (1)
• Aggregation Weight Hint: High; the yield curve is a foundational macro anchor for cross-asset risk-on/risk-off regimes.

Macro Relevance:

• Informs the pricing and liquidity dimension by assessing the restrictiveness of current monetary policy. (1)
• Mechanism: Current steepening implies early-cycle expansion or rising term premia, favouring risk-on/cyclical exposure. (1)
• Cycle position: Not determined.

Regime Context:

• Newly persistent regime; the signal has maintained a Bearish classification for three months since November 2025. (1)
• Direction of change: Stabilising in a Bearish (cyclical expansionary) state. (1)

Model Limitations:

• Lagging indicator with a 6-18 month window; conflates policy expectations with term premia. (1)
• Revision window cannot be assessed from provided content.

Data & References:

• U.S. Treasury Yield Curve Signal (2026-01-01). (1)
• Influential datapoints: GS10 (4.63) and FEDFUNDS (4.33). (1)
• ACM/Kim-Wright term premium estimates and real yield levels would improve reliability. (1)