Sahm Rule vs 10Y-2Y Yield Curve
Live side-by-side comparison with current values, changes, and key statistics.
Also known as: Sahm Rule Recession Indicator (Sahm rule, recession indicator, Sahm) · 10Y-2Y Yield Spread (yield curve, yield spread, 10-2 spread, 2s10s)
Why This Comparison Matters
Sahm Rule (3-month MA unemployment 0.5pp above 12-month low) measures labor-market deterioration. 10Y-2Y Treasury spread (FRED T10Y2Y) measures yield curve shape. April 2026: Sahm Rule triggered July 2024 (3-month MA U3 reached 4.1% above 3.5% trailing low); 10Y-2Y spread approximately +31bp (10Y 4.31% minus 2Y 4.00%; re-steepened from -110bp peak inversion July 2023). Combined April 2026: Sahm triggered for 21+ months without recession (longest in 54-year history) + yield curve re-steepened from deep inversion. Both major recession signals fired but no recession arrived. Most divergent setup since both indicators became reliable.
The April 2026 Configuration
Sahm Rule status: TRIGGERED since July 2024. 3-month MA U3 reached 4.1% (vs 12-month trailing low ~3.5% from September 2022). Difference 0.6pp above 0.5pp threshold. April 2026 U3 4.3% (3-month MA ~4.3%). Sahm Rule remains triggered.
10Y-2Y spread: ~+31bp (April 2026, 10Y 4.31% minus 2Y 4.00%). Positive (re-steepened). Compares to peak inversion -110bp July 2023 (highest since 1981).
The combined April 2026 reading: Sahm triggered + yield curve normalized. Both classic recession signals fired but recession did not arrive. 21+ months past Sahm trigger without recession (longest in 54-year history; previous longest 9 months).
Sahm Rule has been 100% accurate as recession predictor 1948-2024. April 2026 is potentially first false positive in modern history. Yield curve already produced false positive (deepest inversion since 1981 without recession). Both indicators may need recalibration for post-COVID economy.
Long-Term Range and Recent Trajectory
Sahm Rule history: triggered before every recession 1948-2024 (12 recessions). Average lead time 0-3 months. Maximum lead time 6 months (1953 recession).
2024 trigger: July 2024 (3-month MA reached 0.5pp above prior low). U3 trajectory: 3.5% September 2022 low to 4.3% April 2026 (+80bp over 3.5 years). Slow grinding rise without spike.
10Y-2Y trajectory: 2022-2023 inversion peaked -110bp July 2023. Inversion duration 24 months (July 2022 - mid-2024). Longest sustained inversion in modern history. 2024-2026 re-steepening: from -110bp to +31bp (140bp re-steepening).
Historical inversion-to-recession lag: average 12-18 months. -110bp inversion historically signals near-certain recession. Currently 32 months past peak inversion, no recession.
Range (Sahm Rule): 0% (no trigger) to 6%+ (recession). Threshold 0.5pp. Currently 0.6pp (just above threshold).
Range (10Y-2Y): -110bp (peak inversion 2023) to +275bp (peak steepness 2003-2004). Currently +31bp. Mid-range.
Historical Precedents: Past Episodes
2008-09 GFC: Sahm fired Q1 2008. Yield curve inverted 2006 -25bp peak (mild inversion). Recession started December 2007 (NBER). Sahm fired ~3 months after recession start. Yield curve led recession by ~12 months.
2020 COVID: Sahm fired April 2020 (massive U3 spike to 14.7%). Yield curve briefly inverted 2019. Sudden shock disrupted both indicators. Recession Q1-Q2 2020.
2001 dot-com: Sahm fired Q3 2001. Yield curve inverted 2000 -75bp peak. Recession March-November 2001. Sahm coincident with recession start.
1990-91: Sahm fired Q3 1990. Yield curve inverted 1989. Recession July 1990-March 1991.
1973-75: Sahm fired Q4 1974. Yield curve inverted 1973. Stagflation recession.
1966 false positive: yield curve inverted briefly. Sahm did NOT fire. No recession. Confirms importance of dual-confirmation framework.
2022-2026 anomaly: yield curve inverted -110bp peak (deepest since 1981) + Sahm fired July 2024. Both signals fired. Recession did not arrive. Most divergent setup in modern history.
Mechanics: Why Both Signals Fire Before Recessions
Sahm Rule mechanics: economic weakness causes business hiring slowdowns + layoffs. U3 rises. Once 3-month MA exceeds prior low by 0.5pp, labor market deterioration is confirmed. Statistically reliable since 1948.
Yield curve mechanics: Fed hikes short rates aggressively to fight inflation. Long rates reflect lower future short rates expected (recession + cuts ahead). Inversion = market expectation of future easing.
Lag structure: yield curve typically inverts 12-18 months before recession (forward-looking). Sahm fires 0-6 months after recession start (coincident-lagging). Combined: yield curve early warning, Sahm confirmation.
2022-2026 disruption: (1) Fed hiked 525bp in 14 months (fastest since 1980) creating mechanical yield curve inversion, (2) labor force expansion 3-4M workers raised U3 without job losses (false Sahm trigger), (3) services-driven economy less cyclical, (4) AI capex ~$300B+ annual + fiscal support sustained demand, (5) Fed easing room from 5.50% peak.
April 2026 reading: traditional indicators fired but underlying economy resilient. Indicators may need recalibration.
Reading the Pair: Convergence and Divergence
Convergence type 1: Sahm not triggered + yield curve positive = healthy expansion. Best risk-on. Examples: 2010-2014, 2017-2019.
Convergence type 2: Sahm triggered + yield curve inverted = recession imminent or in progress. Risk-off positioning required. Examples: 2008, 2001, 1990, 1981, 1974.
Divergence type 1: yield curve inverted + Sahm not triggered = early recession warning, unconfirmed. Examples: 2006-2007 (preceded GFC), 2019 (preceded COVID accidentally), 2022-2024 (current cycle, unconfirmed).
Divergence type 2: Sahm triggered + yield curve normalized = current April 2026 setup. Both indicators fired then yield curve reset without Sahm reset. Unprecedented.
April 2026 regime: Sahm still triggered (U3 4.3% above 3.7% trailing low) + yield curve +31bp normalized. Either: (1) recession arrives delayed (Sahm correct, yield curve early), (2) both indicators false positives (current most likely scenario), (3) Sahm normalizes via U3 stabilization.
Driver Decomposition: What Moves Each Signal
Sahm Rule drivers: (1) U3 trajectory. Currently 4.3% stable. (2) Labor force participation. 62.4% (April 2026 stable). (3) Job destruction. Initial claims 225K stable. (4) Job creation. Nonfarm payrolls 25K avg/month (slowing).
Yield curve drivers: (1) Fed funds. Paused 3.50-3.75% since December 2024. (2) 10Y yields. 4.31% sticky high reflecting fiscal trajectory + term premium + inflation expectations. (3) 2Y yields. 4.00% reflecting Fed pause expectations. (4) Inflation expectations. Michigan year-ahead 4.7% high.
Decoupling drivers: (1) Labor force expansion 3-4M workers raised U3 without recession-style job destruction. (2) Long rates rose despite Fed pause due to fiscal/inflation concerns. (3) Services-driven economy less recession-prone.
April 2026 reading: Sahm Rule trapped above threshold by labor-force-driven U3 rise. Yield curve normalized via Fed pause + long-rate stickiness. Both signals reflect different aspects of cycle but neither captures resilience.
Cross-Asset Implications
Bonds: 10Y 4.31% reflects fiscal trajectory + term premium more than recession expectations. 2Y 4.00% pricing modest cuts (1-2 in 2026). Bond market not pricing aggressive recession scenario.
Equities: SPY ~$712 record territory. Equities priced for soft landing. Recession indicators ignored. AI capex narrative dominates.
Dollar: DXY ~100. Mild dollar strength. Late-cycle US growth differential vs Eurozone/Japan.
Commodities: Gold $4,722 record. Reflects monetary debasement + geopolitical hedge more than recession hedge. WTI $95.85 elevated (Iran war).
Volatility: VIX 18.76 elevated but not stressed. Markets not pricing recession.
Credit: HY OAS ~280bp tight. IG OAS ~80bp 25-year tights. Credit not pricing recession.
April 2026 cross-asset reading: all asset classes positioned soft-landing. Sahm + yield curve recession signals widely viewed as false positives by market.
Trading the Pair: Setups and Sizing
Setup 1 (soft landing confirmed, base case 60%): Sahm Rule eventually un-triggers as U3 stabilizes 4.0-4.5%. Yield curve stays positive. No recession. Trade: long SPY + cyclicals + flatten yield curve carry. Profit from continued expansion.
Setup 2 (delayed recession arrives, risk 30%): Initial claims spike above 350K. U3 rises above 5%. 10Y-2Y spread re-inverts. Trade: short SPY + long bonds (TLT) + long volatility (VIX calls). Aggressive recession positioning. Sahm + yield curve framework correct, just delayed.
Setup 3 (status quo divergence, 10%): Sahm stays triggered, yield curve stays normalized, no recession. Trade: balanced positioning, watch for resolution.
Key watch points: monthly U3 (1st Friday), weekly initial claims (Thursday), 10Y-2Y daily, NBER recession dating quarterly.
Position sizing: in late-cycle uncertainty with conflicting signals, reduce gross exposure 10-20% from neutral. Keep duration neutral. Watch for setup 2 confirmation.
Convex Indices Linkage
Convex Recession Probability Index (CVRP): synthesizes Sahm Rule + yield curve + NY Fed model + LEI + claims + credit spreads. April 2026 CVRP elevated (Sahm triggered, NY Fed 18.8%, LEI declining). Offset by claims stability + Fed easing room.
Convex Net Liquidity Impulse (CNLI): Fed balance sheet + RRP + TGA. April 2026 CNLI neutral-positive. Tailwind to growth.
Convex Risk Appetite Index (CRAI): credit spreads + equity vol + risk currencies. April 2026 CRAI elevated. Risk-on.
Divergence between CVRP (recession concerns) + CRAI (risk-on) characterizes late-cycle. Use Sahm + yield curve as early-warning. Watch for resolution.
April 2026 reading: cross-asset markets discount soft landing. Sahm + yield curve traditional reliability under question. Recalibration needed.
What to Watch in 2026
Sahm Rule: U3 stabilization 4.0-4.5% = false positive confirmed. U3 above 5% = delayed recession arriving.
Yield curve: 10Y-2Y above +50bp = healthy normalization. Below zero re-inversion = recession warning re-engaged.
Initial claims: above 250K = labor market weakening. Above 350K = recession imminent.
Fed cuts: market pricing 1-2 cuts H2 2026. If 75bp+ arrive, both yield curve steepens further + supports labor.
NBER recession dating: typically retroactive 6-9 months after start. April 2026 no recession declared.
Geopolitical/exogenous: Iran tensions, China-Taiwan, oil shocks could change indicators rapidly.
Sahm Rule recalibration: Claudia Sahm has acknowledged labor force expansion may produce false positive. Recalibration may be needed for post-COVID economy.
April 2026 base case: both indicators normalize as soft landing confirmed by year-end. Sahm un-triggers as U3 stabilizes. Yield curve continues steepening with Fed cuts.
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Frequently Asked Questions
What is the April 2026 Sahm Rule vs yield curve configuration?+
Sahm Rule TRIGGERED since July 2024 (3-month MA U3 0.6pp above 3.5% trailing low). 10Y-2Y spread +31bp (re-steepened from -110bp peak inversion July 2023). Both classic recession signals fired but recession did not arrive 21+ months later (longest divergence in 54-year history). Sahm Rule potentially first false positive in modern history. Yield curve already false positive.
Has the yield curve ever inverted without a recession?+
1966 brief inversion did not produce recession (only modern false positive). 2022-2024 inversion peaked -110bp (deepest since 1981) without recession 32+ months later. April 2026: longest sustained inversion in modern history (24 months) followed by re-steepening without recession. Yield curve recession signal weakened in post-COVID economy.
How should investors use Sahm vs yield curve signals?+
Yield curve as early warning (12-18 months lead historically). Sahm as confirmation (0-6 months lag). Combined: prepare on yield curve inversion, full risk-off on Sahm trigger. April 2026 anomaly: both signals fired but no recession. Suggests both need recalibration for post-COVID labor force expansion + AI capex era. Risk-off positioning may be premature.
What does the Sahm-Curve divergence imply?+
Sahm triggered + yield curve normalized (April 2026): unprecedented setup. Either (1) recession arrives delayed (yield curve normalization premature), (2) both indicators false positives (most likely), (3) Sahm un-triggers via U3 stabilization. Resolution typically 12-18 months. Cross-asset markets pricing scenario 2 (false positives, soft landing). Position cautiously but not aggressively recessionary.
Is Sahm Rule forward-looking or backward-looking?+
Sahm is coincident-to-slightly-lagging. NBER typically dates recession starts within 0-3 months of Sahm firing. Maximum lag 6 months (1953). Sahm value is confirmation, not forecast. Yield curve provides forward signal (12-18 months lead). Combined framework: yield curve preparation + Sahm execution. April 2026 anomaly disrupts traditional framework.
Why has Sahm Rule trigger not produced recession in this cycle?+
21+ months since July 2024 trigger is unprecedented. 1948-2024: every Sahm trigger preceded recession within 6 months. Reasons: (1) labor force expansion 3-4M workers (immigration + post-pandemic) raised U3 without job losses, (2) services-driven economy (~70% GDP) less recession-prone, (3) AI capex ~$300B+ annual sustained demand, (4) fiscal deficits ~$2T continuing, (5) Fed easing room from 5.50% peak. Claudia Sahm has acknowledged potential false positive.
How do recessions historically progress in both indicators?+
2008-09 GFC: Sahm fired Q1 2008 + yield curve inverted 2006 -25bp. Recession started December 2007. 2001 dot-com: Sahm fired Q3 2001 + curve inverted 2000 -75bp. 1990-91: Sahm fired Q3 1990 + curve inverted 1989. 1973-75 stagflation: Sahm fired Q4 1974 + curve inverted 1973. Pattern: yield curve leads 12-18 months, Sahm coincident-lagging. April 2026 disrupts pattern.
What is the trading framework for the April 2026 anomaly?+
Setup 1 (60%): soft landing confirmed, Sahm un-triggers, yield curve stays positive. Long equities + cyclicals. Setup 2 (30%): delayed recession arrives, claims above 350K, curve re-inverts. Short equities + long bonds + long vol. Setup 3 (10%): status quo divergence persists. Reduce gross 10-20% from neutral. Position sizing reflects elevated regime uncertainty. Reserve dry powder for setup 2 confirmation.
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