Yield Curve Whiplash, When the Curve Stops Agreeing With Itself Copy

Yield Curve Whiplash, When the Curve Stops Agreeing With Itself

A structural read on term-structure drift and z-score divergence across stress regimes.

The US yield curve is usually a coherent storyteller.
When its key segments move together, the message is straightforward.
When they diverge, the signal becomes behavioural rather than mechanical.

This Insight examines two layers of the curve’s behaviour:

1. the co-movement of the 10Y–2Y and 10Y–3M spreads

2. the divergence signal derived from the difference in their rolling z-scores

Together, they highlight when the curve is aligned and when it isn’t.

Term-Structure Drift

During quiet regimes, the 10Y–2Y and 10Y–3M spreads remain tightly synchronised.
Breakdowns emerge when the short end begins to detach from the intermediate segment.

Stress episodes, from the GFC and the Euro Crisis to COVID and the 2022–23 rates reset, all show a common pattern,
the initial fracture happens at the front end.

Term-structure behaviour across major stress periods. Synchronisation weakens when the macro narrative shifts.

Z-Score Divergence

To understand the underlying structure, I use:

Z(10Y–2Y) − Z(10Y–3M)

When the value is near zero, the curve is coherent.
Beyond ±2σ, the curve is no longer transmitting a unified macro message.

Across the full sample:

• Calm (|Z|<1), 87.9%

• Drift (1–2σ), 8.7%

• Stress (≥2σ), 3.4%

True dislocations are rare but meaningful.

Distribution of coherence regimes. Stress periods represent only ~3% of observations.

The Curve Today

Both term spreads have normalised back into positive territory, and the divergence indicator is comfortably within the calm regime.

The curve is currently coherent.
Historically, however, these periods can shift rapidly as macro conditions tighten.

This is why, at LB Research, structural signals sit at the centre of my process.

If you want the extended package

I can also publish:

• a cross-market divergence map

• a transition heat-matrix

• or ETF-linked positioning signals (IEF, TLT)

Just tell me which one you’d like next.

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