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.