The yield curve un-inverts. Is that good news?

The US sovereign yield curve staged an important structural milestone on 5 August, as the spread between two-year and ten-year Treasury yields briefly turned positive for the first time since July 2022. The un-inversion of the yield curve is traditionally celebrated by casual commentators as a return to normalcy. Financial history, however, suggests the opposite.

The Bear Steepening Trap

A yield curve un-inversion driven by collapsing short-term yields—known as a 'bull steepening'—is not a sign of economic triumph; it is the classic historical harbinger of imminent recession. The curve un-inverts because markets are violently pricing in panic rate cuts to counter economic deterioration. The danger arrives not when the curve inverts, but when it snaps back to positive slope.

The un-inversion of the sovereign yield curve is not an economic all-clear signal, but a reliable historical siren warning that central bank easing is arriving in response to cyclical distress.