Market stress indicators: the yield curve, credit spreads, VIX and more
Updated 2026-09-27
Market prices react to trouble faster than economic data, but not all of them in the same way. Some tend to warn a year or more ahead; others rise as stress actually arrives and so confirm it rather than predict it. This monitor splits them into those two groups.
Does an inverted yield curve predict a recession?
The yield curve compares long-term and short-term Treasury yields. It normally slopes up; when short rates rise above long rates it is inverted. Inversion of the 10-year minus 2-year spread has preceded every US recession since the 1970s, usually by 6 to 24 months. It is not infallible: the curve stayed inverted through much of 2022–24 without a recession, which is why the site's pressure answer adds jobless claims and financial conditions rather than relying on the curve alone.
Why watch credit spreads?
A credit spread is the extra yield investors demand to lend to companies rather than the US government. Spreads widen when investors fear defaults, and they tend to widen quickly as stress arrives. The monitor judges each spread on the worse of its level and how fast it is widening, because a fast move can flag stress while the level still looks calm: the Baa spread widened 45 bp in the three months to August 2007 from a level of about 205 bp.
What does the VIX tell you?
The VIX is the market's expected volatility of the S&P 500 over the next month. Its median since 1990 is about 18; it reached 36 or more in every recession since then.
Pressure building: the indicators and their warning levels
| 10Y Treasury yield | Yield vs. its own 3-year average, so it reads the same in any rate era: yellow ≥ +75 bp, orange ≥ +125 bp, red ≥ +175 bp. High in every hiking cycle (1994 +128, 2000 +93, 2006 +80, 2018 +82, 2023 +211) -- a tightening signal that tends to lead recessions by a year or more. |
|---|---|
| 10Y yield 3-month change | Rise over 3 months: yellow ≥ +25 bp, orange ≥ +50 bp, red ≥ +75 bp. |
| 3M T-bill | Pace of Fed tightening, change over 12 months: yellow ≥ +100 bp, orange ≥ +200 bp, red ≥ +300 bp. |
| WTI crude | Oil-price shock, change over 12 months: yellow ≥ +25%, orange ≥ +50%, red ≥ +80%. |
| 10Y–3M spread | Yield-curve inversion: yellow ≤ +50 bp, orange ≤ 0 bp, red ≤ −50 bp. |
| 10Y–2Y spread | The other standard curve measure; inversion has preceded every US recession since the 1970s, usually by 6-24 months: yellow ≤ +50 bp, orange ≤ 0 bp, red ≤ −25 bp. |
Stress showing: the indicators and their warning levels
| VIX | Expected S&P 500 volatility (median since 1990: ~18): yellow ≥ 25, orange ≥ 30, red ≥ 40. Reached 36+ in every recession since 1990 (81 in 2008, 83 in 2020). |
|---|---|
| HY credit spread | High-yield spread over Treasuries, the worse of -- level: yellow ≥ 400 bp, orange ≥ 500, red ≥ 700; widening over 3 months: yellow ≥ +100 bp, orange ≥ +175, red ≥ +300 (Apr 2025: +182). |
| IG credit spread (Baa) | Moody's Baa corporate spread over the 10-year Treasury, the worse of -- level (median since 1986 ~210 bp): yellow ≥ 250 bp, orange ≥ 300, red ≥ 400; widening over 3 months: yellow ≥ +40 bp, orange ≥ +75, red ≥ +125 (Aug 2007: +45, Apr 2008: +91, Oct 2008: +172). |
| Financial stress index | St. Louis Fed Financial Stress Index, a composite of 18 rate, spread, volatility and funding measures; 0 = average: yellow ≥ 0.5, orange ≥ 1.0, red ≥ 2.0. Peaked at 2.0 in 2001, 9.7 in 2008 and 5.6 in 2020. Weekly, from 1993. |
Data sources
All from FRED: Treasury yields (DGS10, DGS2, DGS3MO) and curve spreads (T10Y3M, T10Y2Y), WTI crude (DCOILWTICO), the ICE BofA US high-yield spread (BAMLH0A0HYM2), Moody's Baa spread over the 10-year Treasury (BAA10Y), the CBOE VIX (VIXCLS) and the St. Louis Fed Financial Stress Index (STLFSI4). FRED publishes only about three years of the ICE spreads, so the investment-grade row uses the Baa spread, which goes back to 1986.
The free members' market stress dashboard shows every measure above with its current value, direction, signal and chart, plus replays of past crises and CSV downloads. See today's combined reading on the home page.