September | 2019 | iMarketSignals

An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality is considered to be a predictor of recessions.
Prior to recession it is advisable to exit the stock market and invest in U.S. Treasuries instead; in this strategy using as proxies ETFs (SPY) and (IEF), respectively.
This model uses the 2-year and 10-year U.S. Treasury yields as measures of short-term and long-term rates, respectively, and calculates the Forward Rate Ratio (FRR2-10) between the two rates.
FRR2-10 is the ratio of the rate at which one can lock in borrowing for the eight year period starting two years from now and the current ten-year rate itself.
Currently the FRR2-10 is near 1.0 signifying that US economic activity is near the end of the expansion phase of this business cycle.