Treasury Yield Spread
TUT — Two's Under Ten's
The spread between the 10-year and 2-year Treasury yields. The most widely watched spread on Wall Street. When the 2-year yield rises above the 10-year (TUT goes negative), the curve is inverted — a historically reliable recession warning signal with a 12–24 month lead time.
NOB — Notes Over Bonds
The spread between the 30-year bond and the 10-year note. Traders use it to bet on the long end of the curve — buying NOB bets on steepening, selling NOB bets on flattening. Reflects the market's long-run inflation and growth outlook.
10Y/3M — The Fed's Spread
The spread between the 10-year note and the 3-month bill. The Federal Reserve's preferred recession gauge because the 3-month rate directly reflects current monetary policy. Research by the New York Fed shows it has the strongest predictive record of any spread going back decades.
FAQ: What are Curve Trades?
In bond trading and futures markets, the TUT and NOB are known as yield curve spreads or simply curve trades — intra-market spreads used to analyze the term structure of interest rates. Traders use them to take a directional view on the shape of the curve rather than on the overall level of rates.
- TUT (Two's Under Ten's): Also commonly called the 10-2 Spread or 2s10s. Measures the difference between the 10-year and 2-year Treasury yields. The most widely cited recession signal in financial media. When the 2-year yield rises above the 10-year (TUT inverts), it has historically preceded every U.S. recession since 1955, with only one false positive in the mid-1960s. Track it live on FRED (T10Y2Y).
- NOB (Notes Over Bonds): Measures the difference between the 30-year bond and 10-year note. Traders use it to bet on the "long end" of the curve — buying the NOB (buying notes, selling bonds) is a bet the curve will steepen; selling it is a bet it will flatten. Track it using U.S. Treasury daily yield data.
- 10Y/3M Spread (green): The Federal Reserve's preferred recession gauge. The 3-month rate directly reflects current monetary policy, making this spread a real-time read on how tight policy is relative to long-run growth expectations. Track it on FRED (T10Y3M).
FAQ: How Does the Fed Respond to an Inverted Yield Curve?
The Fed doesn't respond to an inversion directly — it responds to the economic conditions that cause it. When short-term rates (driven by Fed policy) rise above long-term rates, it typically means the market believes the Fed has tightened too aggressively and a slowdown is coming. The usual sequence:
- Inversion: The Fed has raised the federal funds rate aggressively to fight inflation, pushing short-term yields above long-term yields.
- Monitoring: The Fed watches the 10Y/3M spread closely alongside unemployment and inflation data. A sustained inversion increases internal pressure to pivot.
- Rate cuts: Once economic data weakens (rising unemployment, falling inflation), the Fed begins cutting rates. This steepens the curve as short-term yields fall faster than long-term ones — which is why the curve often un-inverts just as a recession begins, not before.
- QE (if needed): In severe downturns the Fed may also purchase long-term Treasuries (quantitative easing) to push long-term yields down further and stimulate borrowing.
The practical takeaway: a re-steepening of the TUT after a prolonged inversion — driven by falling short-term rates — has historically been a more immediate recession warning than the inversion itself.