At 2/10 levels, but the 10- to 2-year period spreads below.
figure 1: 10-year to 3-month Treasury spread (blue, left scale) and 5-year Treasury-TIPS spread (red, right scale), both expressed as a percentage. Source: Ministry of Finance via FRED, author calculations.
Lower term spreads suggest that inflation expectations remain the same as in February, but growth expectations are lower. On the other hand, the 10-year to 3-month spread on Friday was the same as on February 10.
Current commentary seems to think that a recession is almost a foregone conclusion. Using the simple 10yr-2yr term spread probit model, the probability of a recession in May 2023 is 18%; using 10yr-3mo, it’s 2%. Adding the federal funds rate did not significantly change the results. However, as Ahmed pointed out, including oil prices, financial conditions, foreign term spreads can raise the probability to around 60%.
