Sendero Chart of the Month

Now that the Fed has raised rates, investors are looking at the (Treasury) curve for an indication of what’s next for the economy. Historically, the spread between 2-Year and 10-Year Treasuries, known as the “2-10 spread”, has commonly been used to forecast potential recessions when it goes negative. However, given the current inflationary environment, a better way to gauge economic activity is to look at the spread between the Fed Funds rate and 10-Year Treasuries. Even with expectations for the Federal Reserve to continue raising the Fed Funds rate in 2022, that spread is still very much positive!

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