What you’re not hearing about the steepening yield curve

The 2-10 yield curve isn’t uninverted yet, but at -30 bp it is most of the way back from its maximum inversion of -1.08%. We are self-evidently not in recession, so the initial April 2022 inversion was way too early as a warning signal – as inversions usually are, on average 13 months ahead of the business cycle top. Uninversions have historically been better, on average, only 1 month ahead. Pending uninversion now doesn’t necessarily point to imminent recession, though. This inversion cycle is markedly different from all others. It is the deepest among the last four, but depth is not associated with severity of recession. And the present uninversion process is the only one associated with rising yields, with most of the action in the long end; historically, uninversions have been associated with falling yields driven by the short end. The curve is merely a technical indicator, with an inconsistent track record. And for macro, technical indicators aren’t working in this unique post-pandemic cycle. Be that as it may, with the curve behaving so differently this time, there is no reason to take it seriously as a recession warning.