Why the curve un-inverted without a recession.

US10Y 4.46%

The US Treasury curve un-inverted in the autumn of 2024, when the Fed began cutting and the 2-year yield led the front end lower. The 2s10s spread spent the second half of 2025 hovering between 30 and 70 basis points; the latest reading is around the middle of that range. The canonical sequence that follows a sustained un-inversion, recession at a six- to eighteen-month lag, has not started. Markets are reading the un-inversion as a "this time is different" moment. We read it differently: this cycle's un-inversion was driven by the term premium, not by a Fed cutting into a slowdown. That is a different signal.

What un-inversion usually means

In the canonical cycle the sequence runs: the curve inverts as the Fed hikes faster than the long end can absorb. It stays inverted until growth visibly cracks. The Fed then cuts the front, the long end rallies less, and the curve steepens. That re-steepening is the recession bell, not the inversion itself. It is the bull steepening that tells you the cycle is ending.

The September 2024 un-inversion was that bull steepening. The front-end rallied 50 basis points on the first cut. The long end moved less. That is the playbook. What happened next was not.

What's happened since

Over the last twelve months the long end has done the work. The 10-year yield has risen by roughly 22 basis points over the period shown below, against a front end that has slipped just enough to keep the curve modestly positive. That is a bear steepening, and it has historically been a different animal than the bull-steepening recession signal.

Term premium did the work

Decompose the 10-year yield and the picture is cleaner. Treat the yield as the expected average short rate over ten years, plus a term premium. The expected-rate component has barely moved; the futures path implied by OIS is essentially where it was last autumn. The term premium has risen by 50 to 70 basis points, depending on which model you trust. The re-steepening is in that bucket.

Why has the term premium risen? Three plausible drivers, in rough order of contribution: Treasury supply, with deficit projections widening; a softer foreign bid as Asian reserve managers re-allocate away from the long end; and an unwind of the safe-haven duration bid that piled in through the early-2026 geopolitical episode. None of those have anything to do with the business cycle.

What this means for the recession question

A curve that steepens because the long end is selling off does not carry the same growth information as one that steepens because the front end is being cut. If you want the historical analog with the closest structural fit, it is the late 1990s, not the late 1980s.

The growth-surprise indices remain soft on the activity side, which is why we do not think the recession signal has gone away. It is just that the un-inversion is not the signal. The signal is in the activity prints and, separately, in the credit channel. The dollar piece walks through where the data has actually softened, and the FX side is where it has shown up first.

What to watch

• NY Fed ACM model decomposed term premium estimate
• The 5y forward 5y rate, the cleaner gauge of long-end expectations
• 10-year auction tails and bid-to-cover trend
• OIS-implied year-end policy rate vs the most recent SEP median
• Foreign holdings of Treasuries (TIC data), 3-month change