Substantial research suggests that the difference between interest rates for 10-year and 3-month U.S. treasuries is a reliable leading indicator for the U.S. economy, so much so that the New York Federal Reserve even creates charts using this metric, boldly titled "Probability of a U.S. Recession".

Let's hope the the science holds, since according to the New York Fed's latest chart there's almost zero chance of a U.S. recession now. In April, the treasury-spread-based probability of recession collapsed to 0.04%.

We're not going to claim we're completely sold on this metric, but have to concede that historically it has worked and it's also hard to imagine why the U.S. would fall back into recession in the near-term given the rebound already in place. Things would have to start deteriorating first, and we haven't seen that yet. Should this time be different? That's not a rhetorical question. You can read the New York Fed's justification for this metric here and decide for yourself.

(Tip via Carpe Diem)

chart of the day, probability of U.S. Recession predicted by Treasury Spread, april 2010