Based on how far the US term premium has fallen, to see any further meaningful decline in bond yields we’d need another downside macro shock. While we’re not bulls on growth — seeing plenty of risks out there — we don’t think we’re on the cusp of an immediate downturn. We are closing our long US 2-year Treasury position.

The Australian economy has had a great run, avoiding recession for almost three decades. Most macro indicators are in reasonable shape. But there are three risks looming. First, high levels of household debt and heavy exposure to residential housing put domestic demand under the spotlight. Second, should the upcoming election deliver a Labor victory, there is the danger of leftward shift in economic policy. Third, in the longer run, the likelihood of slower growth in China may lead to softer demand for Australian commodities.

The slowdown in global growth has been accompanied by an inversion of the US yield curve — the one recession indicator that always enlivens markets. While statistically the curve is an excellent forecaster of downturns, there is much to suggest things might be a little different this time.