Trend + yield curve

✕ Avoid

Index timing — holds SPY or T-bills

The trend filter gated by the bond market: only step aside when SPY is below its 10-month average and the 10-year/3-month Treasury curve has inverted within the past year.

View 1-year backtest →

New backtests are run by the owner.

How it works

An illustration of the rules on made-up prices, not real data.

Long-run result — 1994–2026, SPY with T-bill cash

Annual return

10.3%

SPY 10.9%

Worst drawdown

-49.5%

SPY -55.2%

Stayed invested through 2008 — the curve inverted more than a year earlier.

Growth of $100,000 vs the same amount in SPY, 1994–2026

From the latest backtest run (to 2026-10-19): 10.2%/yr vs SPY 10.8%/yr; worst drop -49.5% vs -55.2%. Log scale, so equal percentage moves look the same size. Hover for values.

Rules

At each month-end: is SPY below its 10-month average?
And was the 10y–3m yield spread negative at any point in the last 12 months? (FRED T10Y3M)
Both → sell and hold T-bills; otherwise hold SPY

Assessment

+ Curve inversion has preceded every US recession since the 1960s
+ Leading, not lagging — inverts 6–18 months before recessions

− Long and variable lead time; 2022–24 inversion had no recession (so far)
− Monetary regime changes (QE) may have weakened the signal

Last 1-year backtest: 07 Oct 2026 — SPY 17.7%