Yield Curve Slope Signal

Signal Summary:

• Configuration statement (mandatory): Given the T10Y2Y spread at 0.51 and T10Y3M at 0.65, this setup aligns with Range-biased price paths and Normal volatility, where the dominant risk is a Regime shift toward expansion, not mean reversion. (1)
• The signal is currently in a Flat/Neutral regime, reflecting a transition away from restrictive policy towards economic normalization. (1)
• Conviction Band: Low; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Improving; Threshold Proximity: Near; Revision Sensitivity: Moderate.

Methodology Applied:

• A Composite Z-score between -0.50 and 0.50 defines a Flat or Neutral curve, implying mid-cycle stability. (1)
• Persistent readings above 0.75 indicate a Steepening curve, signaling expansionary bias and economic acceleration. (1)
• Readings below -0.75 indicate an Inverted curve, signaling restrictive policy relative to growth. (1)
• Yield Curve Slope Signal: Latest observation 2026-03-31. (1)

Key Dynamics:

• The primary driver is the rising Z-score of the T10Y3M spread (0.69), which is approaching expansionary territory. (1)
• Momentum is currently stabilizing in positive territory after a long period of inversion throughout 2023. (1)
• Conditional Invalidation: The composite Z-score falls below -0.75 for two consecutive months. (1)
• Signal stability is high, with the 10Y2Y and 10Y3M components showing directional alignment. (1)

Scenario Balance:

• Base case dominant; risks balanced.
• Most plausible upside risk: Acceleration into an expansionary regime if the composite breaches 0.75.
• Most plausible downside risk: Re-inversion if short-term rates rise faster than growth expectations.

Time Horizon & Aggregation:

• Time Horizon: Cyclical (months) due to the multi-quarter lag between curve shifts and economic impact. (1)
• Aggregation Weight Hint: Medium; the signal is a primary macro lead but currently lacks a directional breakout.

Macro Relevance:

• This signal informs the macro dimension of growth expectations and policy restrictiveness. (1)
• The economic mechanism is the transmission of Federal Reserve policy rates into long-term funding costs and term premiums. (1)
• Cycle position: Mid-cycle transition (not determined for specific phase).
• Interacts typically with credit spreads and volatility to confirm financial stress levels. (1)

Regime Context:

• The current Flat/Neutral regime has persisted since August 2024 (approx. 20 months). (1)
• Direction of change: Strengthening towards an expansionary (Steepening) regime. (1)

Model Limitations:

• Lagging indicator properties (2-6 quarters) and potential distortion by QE/QT. (1)
• Subject to constant-maturity yield revisions. (1)

Data & References:

• Yield Curve Slope Signal (2026-03-31). (1)
• Dominant datapoints: T10Y2Y (0.51) and T10Y3M (0.65). (1)
• Credit Spreads and VIX data would improve reliability of the regime transition.