What the US yield curve is telling us

RUSSIA'S invasion of Ukraine occurred in late February, but it will only make its way through economic data releases in the weeks ahead. Hence, investors need to increasingly turn to market-driven measures of expectations for guidance about what the future holds for the US economy.

One of the most reliable of those measures has been the US Treasury yield curve - the difference between yields on long-dated and short-dated US Treasuries. The Federal Reserve Bank of New York itself noted that the US yield curve has "predicted essentially every recession since 1950 with only one false signal''.

Indeed, since the mid-1970s, of the 7 times when yields in 2-year US Treasuries exceeded the yields on 10-year Treasuries ('yield curve inversion'), six of them were followed by a US recession over the next 1 to 2 years.