Line graph shows spread between 10-year and 1-year U.S. Treasury yields.
Y-axis: Spread (in basis points; bp); x-axis: 1978 – 2021.
In the six recessions shown (1980, 1981 – 1982, early 1990s, early 2000s, 2007 – 2009), and February 2020… spread generally widens.
Recessions:
1980—Spread widens from below -100 bp to about 225 bp.
1981 – 1982—Spread widens from about 50 bp to more than 250 bp.
Early 1990s—Spread widens from about 50 bp to about 200 bp.
Early 2000s—Spread widens from about 50 bp to about 175 bp.
2008 – 2009—Spread widens from about 75 bp to near 300 bp.
February – March 2020—Spread widens from about 8 bp to over 51 bp.
With much volatility, spread narrows in 1976-1980 (falling from 250 bp to below -100 bp.
- In 1980 – 1985 the spread increases to more than 250 bp, with significant fluctuation.
- From 1985 – 1990 (above 250 bp to 0 bp by the end of the decade)
- From 1990 – 1995 (near 0 bp to above 300 bp, declining to about 50 bp)
- 1995 – 2000 (about 50 bp, rising above 100 bp, then falling to 0 bp before recovering to 50 bp by the end of the decade).
- 2000 – 2005 (50 bp falling to -50 bp, then rising to a high above 200 bp, then falling to 0 bp, and rising to about 100 bp by the end of the period)
- 2005 – 2010 (100 bp rising to about 175 bp, then falling to a low near 0 bp before recovering in the recession at 300 bp)
- 2010 – 2015 (near 300 bp declining to a low below 150 bp, then rising to 200 bp)
- 2015 – 2020 (near 150 bp declining to roughly -26 bp), then increasing to near 142 bp by the end of Q3 2021.
Sources: Bloomberg, and Wells Fargo Investment Institute. Monthly data from January 1, 1978 to September 30, 2021. For illustrative purposes only. Ten-Year Treasury Constant Maturity and the One-Year Constant Maturity Indexes are published by the Federal Reserve Board and are based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a 10-year maturity and the equivalent of a one-year maturity. Shaded area represents time frame of a U.S. economic recession. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. 100 basis points equal 1%. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.
Key Takeaways
- A steepening yield curve has historically pointed to an uptick in economic growth.
- The yield curve usually reaches peak steepness, on average, 20 months after a recession.
- Short-dated yields remain anchored by the Federal Reserve’s interest rate policy, while intermediate and long-dated yields have climbed from last year’s lows on better growth and inflation prospects.