Yield Curve Un-Inverts (Steepening)
When the curve normalizes — the late-cycle alarm
The yield curve un-inverting (moving from negative back to positive 10Y-2Y spread) has historically been a more immediate recession signal than the initial inversion. The median lag from un-inversion to recession onset is approximately 3-6 months.
| Date | 1M return | 1Y return | 5Y return |
|---|---|---|---|
| 1976-06-01 | +4.4% | -3.7% | +33.6% |
| 1980-05-02 | +4.7% | +23.8% | +72.5% |
| 1981-10-26 | +4.5% | +12.8% | +99.7% |
| 1988-12-22 | +4.2% | +24.5% | +67.3% |
| 1990-03-30 | -2.3% | +9.2% | +47.4% |
| 1998-05-27 | +3.4% | +19.5% | -11.5% |
| 2000-12-27 | +2.6% | -12.3% | -4.2% |
| 2005-12-28 | +2.1% | +13.2% | -0.0% |
| 2007-03-21 | +3.4% | -7.3% | -2.1% |
| 2019-09-04 | -0.9% | +21.9% | +84.1% |
| 2022-04-05 | -8.4% | -9.3% | — |
| 2024-08-28 | +2.6% |
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
The curve typically un-inverts because the Fed is cutting rates in response to economic weakness it already sees. By this point, the recession is usually imminent or has already begun.
The data supports maintaining equity exposure during the inversion period and reducing only when the curve begins to steepen back. Timing is never perfect, but the un-inversion narrows the window.
When the curve steepens due to Fed cuts, long-duration bonds rally significantly. Extending duration before un-inversion has historically been profitable.
Steepening after an inversion compresses the timeline — historically to a matter of months — so this, not the original inversion, is the point to consider trimming equity overweights built up during the late-cycle rally. It is also worth reviewing bond duration: long-dated Treasuries have rallied when the Fed cuts its way back to a steeper curve.