10Y-3M Yield Curve vs S&P 500

The 10Y-3M spread inverted on October 25, 2022 and remained negative through December 13, 2024, a 780-day stretch that ranks as the longest sustained inversion in the FRED record going back to 1981. The trough of -190 bps printed in March 2023, materially deeper than the 2s10s trough of -110 bps over the same window and consistent with the NY Fed's ranking of the 10Y-3M as the more reliable recession signal of the two. Mechanics during the inversion: the 3-month T-bill yield touched 5.50% in October 2023 (Fed funds at 5.25-5.50% upper bound), while the 10-year Treasury yield ranged between 3.30% and 5.00% before stabilizing around 4.40% through 2024. The uninversion event on December 13, 2024 occurred when the 10-year yield rose to 4.396% as the 3-month yield declined to 4.32%, both the 'bull steepener' (short rates falling faster than long rates) variant typical of Fed-pivot phases. Since uninverting, the spread has oscillated, briefly re-inverting in February 2026 before returning to positive territory at +74 bps by late April 2026.

Across the 8 prior US recessions back to 1968, the 10Y-3M spread inverted before each one with lead times ranging from 7 to 24 months, averaging roughly 12 months from peak inversion depth to recession onset. The 2022-2024 inversion is at month 37 from initial inversion (October 2022) and month 16 from uninversion (December 2024) without an NBER-dated recession, the longest such delay in the post-WWII record. Three structural arguments are circulating among macro desks. First, the AI capex cycle ($180B Alphabet 2026 capex, $135B Meta) has produced a productivity tailwind that offsets restrictive monetary policy. Second, household balance sheets entered the inversion period with locked-in 30-year mortgages near 3% from 2020-2021 refinancing, which insulated consumer cash flow from the rate-hike cycle. Third, the Cleveland Fed's text-mining model on Beige Book sentiment puts current recession probability at 24% as of November 2025, well below the 50% threshold the model historically associates with recessions within 12 months. The pattern of 'inversion without recession' is not unprecedented: 1966-1967 produced a similar non-recession inversion, but no post-war US inversion has run this long without delivering a recession or recanting via clear false-signal classification.

Each prior 10Y-3M inversion produced a distinct recession lag and SPY drawdown profile. June 1989 inversion (-30 bps trough): NBER recession onset July 1990, lag 13 months, SPY drawdown 17% peak-to-trough. July 2000 inversion (-90 bps trough): recession onset March 2001, lag 8 months, SPY drawdown 49% (the dot-com bear). January 2006 inversion (-50 bps trough): recession onset December 2007, lag 23 months, SPY drawdown 56% (the GFC). May 2019 inversion (-50 bps trough): recession onset February 2020, lag 9 months, SPY drawdown 34% (COVID-induced, complicating attribution). The 2022-2024 inversion ranks as the deepest at -190 bps and the longest at 780 days, but produced no recession and an SPY return of approximately +56% from October 2022 to December 2024 (the inversion period itself was a bull market). The April 2026 SPY level near $588 represents an additional ~30% return since uninversion, totaling roughly +90% from the inversion-start to current readings, the strongest equity performance during and after any inversion in the post-WWII record.

Three datapoints in 2026 will validate or invalidate the 'this time is different' thesis. First, whether the spread re-inverts on a sustained basis: the February 2026 brief re-inversion echoed mid-2024 episodes that resolved upward within weeks, but a multi-month re-inversion would strongly suggest the 2022-2024 signal is delayed rather than failed. Second, the trajectory of Cleveland Fed recession probability: a move above 35% (current 24% as of November 2025) historically aligns with recession onset within 9-12 months and would mark a clear regime shift in the macro probability stack. Third, SPY drawdown behavior at the next earnings disappointment: the post-uninversion period typically produces the actual recession 6-18 months after the spread returns to positive, which dates April 2026 to October 2026 as the historically most-probable recession-onset window. The pre-uninversion bull-steepening (December 2024) was driven by the Fed cutting the 3-month rate, the same pattern observed in late 2007 and June 2019 that preceded recession, suggesting the steepening shape itself is the latest-in-cycle signal rather than the all-clear that headline framing suggests.

Professional desks express curve-versus-SPY views in three structural shapes. A bull steepener trade (long 10Y, short 3M, with SPY held flat) prices Fed-cuts-without-recession: the 3-month rate falls faster than the 10-year, which is what produced the December 2024 uninversion. A bear steepener trade (short 10Y, long 3M, with SPY long) prices growth re-acceleration with sticky long-end yields, the configuration most associated with no-landing scenarios. A flattener (short 10Y, long 3M, with SPY hedged short) prices late-cycle stress without recession yet, the trade that worked through 2022-2024 before the uninversion. Sizing follows DV01-equivalence: a 100-bps spread move corresponds to roughly 4 basis points on SPY's discount rate, which translates to approximately 8% on SPY price assuming 25x forward earnings. The April 2026 spread of +74 bps prices a benign reflation outcome, with the next 100 bps of spread widening implying roughly 8% SPY upside if the no-recession thesis holds and roughly 15% SPY drawdown if the curve re-inverts and a recession arrives.

The Convex Net Liquidity Impulse (CNLI) sat in neutral-positive territory through April 2026, with Fed balance sheet stabilized at $6.6T, RRP below $200B from the $2.5T late-2022 peak, and TGA not draining. CNLI says the macro liquidity backdrop is consistent with continued SPY support, which has been the dominant signal overriding the inverted-curve recession warning since 2022. The Cleveland Fed's Beige Book text-mining model put recession probability at 24% in November 2025, with the model itself flagging that consumer-survey-based and yield-curve-based readings have produced more false signals over the past 18 months than at any point since the early 1990s. Reading the 10Y-3M spread alongside CNLI and the Cleveland Fed model gives the macro regime (CNLI), the recession probability (Cleveland), and the curve-specific timing signal (10Y-3M) in a single workflow. The current configuration of positive spread + neutral-positive CNLI + 24% Cleveland recession probability sits in the bottom decile of historical bear-case readings, which is structurally why SPY trades near highs despite the late-cycle interpretation many strategists place on the post-uninversion period.