Yield Curve Back Near Highs

With long-term interest rates rising and short-term rates remaining contained, the rising yield curve is once again starting to receive attention. For those who are unfamiliar with the yield curve, we strongly suggest reading the NY Fed's discussion on the indicator as a leading indicator of economic activity. In short, high values in the yield curve are positive for the economy, while an inverted yield curve (negative spread between long and short term rates) is a harbinger of economic weakness down the line. While there are many variant definitions of the yield curve, for our analysis we defer to the NY Fed which defines the yield curve as the difference (in basis points) between the yield on the 10-Year and 3-Month US Treasury Note. In the chart below, we highlight the historical spread between 10-year and 3-month Treasury yields. As shown in the chart, the curve is currently at the high end of its historical range. With the exception of 1982, the yield curve is now at similar levels where prior peaks occurred. In the current period, the curve has made multiple attempts to break through the 380 bps level, but each time it has failed. Will this be the run that takes the curve through the 400 basis point level, or will heavy resistance once again be too much for the spread to handle?