Econbrowser

Interpreting the Shrinking Term Spread

The 10‑year versus 3‑month Treasury spread has been compressing sharply, as high‑frequency data show a pronounced narrowing. Analysts note that the traditional term premium calculation omits heightened default risk, which is evident in rising U.S. Treasury CDS spreads. When inflation and credit risk are factored in, the adjusted spread could be as low as 19‑25 basis points, far below the headline 30‑36‑bp figure. This suggests the yield curve’s inversion may be deeper than surface metrics indicate.