If the US economy is robust, why is the yield curve still inverted?

BY MOST accounts, the US economy is chugging along nicely and has, at the very least, avoided falling into a recession. If so, then why has the US Treasury yield curve been inverted for almost two years, a phenomenon that has several times in the past proven to be the precursor to an economic slowdown?

In a March research note, Deutsche Bank noted that since early July 2022, the part of the Treasury yield curve that plots two-year and 10-year yields has been continuously inverted, meaning that short-term bonds yield more than longer ones. That exceeded a record 624-day inversion in 1978, said Deutsche Bank.

Currently, the two-year Treasury bond yields are close to 5 per cent while the 10-year bond yields are at about 4.66 per cent. In other words, a month after the release of that report, the US yield curve is still inverted, with the difference being about 34 basis points.