Long Term Perspective
The spread between the 3-year Treasury note and the federal funds rate averaged -181 basis points in the 1980s when interest rate levels were generally much higher than they are today. The spread turned around in the 1990s to average +83 basis points.

Short Term Perspective
The spread between the 3-year note and the federal funds rate averaged +8 basis points in 2000-01. Note how the spread was positive in 1999 and 2000 when market expectations were focused on Fed tightening. When market sentiment shifted towards expected easing, the yield on the 3-year note was lower than the federal funds rate. The yield on the 3-year note edged up in November after declining for seven straight months. No one expects imminent rate hikes, but investors think that the rate cuts are over for this cycle.