Global anchor · Money · Interest Rates and the Yield Curve
41neutral
Now 1.05 percentage points | Data for Sep 2026
Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.
What it is
The 10-year Treasury yield minus the 3-month Treasury bill rate. Below zero, the curve is called “inverted”.
An inversion means markets expect rates to fall. Historically it has often come before recessions, but the gap can be long, and there are exceptions.
The lower it is, the closer to inversion; below 0, the curve is inverted.
Where it stands now
coldcoolneutralwarmhotHatched = earlier periods that were also neutral
When it was here before
US stocks after it began, cumulative1 yr2 yr3 yr
For each period, the changes 1, 2 and 3 years after it began are cumulative and measured from its first month; “What happened next” is measured from every neutral month, so the two give different numbers. The events named beside each period are major events of that time, not necessarily related to the readings here.
What happened next
Bars: median cumulative changeEarlier months with Yield curve neutral, excluding the current period (94)All months (763)
Median of the deepest drop below the starting month within the next 5 years: −3.2% for months with Yield curve neutral; −7.3% for all months.
The neutral months come from a small number of market episodes (16), and neighboring months are not independent events; rises and falls are all listed. This is the historical record, not a forecast. “US stocks” means the S&P 500 price index compiled by Professor Shiller (monthly average, excluding dividends).
| Median position | Back to neutral (40–60) | Still neutral | |
|---|---|---|---|
| 1 yr later | 36cool | 14% | 14% |
| 3 yr later | 39cool | 5% | 5% |
| 5 yr later | 60warm | 23% | 23% |
Has hot or cold lined up with later returns?
1963–2021: average yearly change in US stocks over the next 5 years
In this period, the hotter the month, the higher the average over the next 5 years. The months overlap, so there are really only a few market episodes. This is a tendency, not a rule, and not a forecast.
What it is linked to
Fed funds ratetoYield curveCommon explanation: Cause · opposite direction
Rate hikes lift short-term rates first, flattening or inverting the curve
This issue: Fed funds rate at 72 (warm), Yield curve at 41 (neutral) — at least one is in the neutral range (40–60), so we make no call this issue.
Supported by the dataAgreement +0.77 · in step in 46 of 48 5-year periods
Yield curvetoLeading indexCommon explanation: Cause · same direction
An inverted curve usually signals tight monetary policy and expected rate cuts, and the economy weakens afterwards; inversions have often come before recessions
This issue: Yield curve at 41 (neutral), Leading index at 42 (neutral) — at least one is in the neutral range (40–60), so we make no call this issue.
Weak or inconsistentAgreement +0.22 · in step in 28 of 51 5-year periods
Values
Data and sources