You wouldn’t know it if your only frame of reference is the post-Lehman world, but bear steepening isn’t a “normal” mode of yield-curve functioning.

The QE era changed things, but shocks used to arrive at the front-end of the curve, where rates are sensitive to monetary policy.

In the post-GFC world, though, front-end rates were anchored at the lower-bound. The back-end was the only place where movement was possible.

The figure above, from Goldman, illustrates the point. Note the preponderance of bear steepening episodes beginning after the crisis.

Another fixture of the post-Lehman era was policymakers’ and market participants’ obsession with the ever-present risk of too much disinflation. Allegedly, outright deflation lurked around every corner in advanced economies, or so said central banks desperate for plausible deniability vis-à-vis the persistence of emergency policy settings years on from any actual emergency.

Although there were certainly periods during which “good news was bad news,” it was relatively rare that markets were concerned enough about a possible economic overheat to panic over constructive data. That is to say, signs of reflation (as distinct from inflation) were generally welcomed as evidence that economies were battling their way out of secular stagnation. So, bear steepening associated with better data tended to engender a positive reaction from equities.

“Most of the bear steepening periods have been since the GFC and were triggered by better growth, which made investors fade deflation risk,” Goldman’s Christian Mueller-Glissmann wrote Wednesday. “As a result, bear steepening phases have been mostly ‘risk on’ with equities performing strongly despite rising yields.

The figure gives you a sense of cross-asset returns during bear steepening episodes compared to periods of bull steepening and the unconditional average.

There are two ways bear steepening can wrong, and it’s worth reminding ourselves of them given last month’s fireworks at the long-end of the US curve.

One way is that real yields can rise “too” fast, which is to say faster than the improvement in the growth outlook. If you’re an equity bull, you can explain away rising reals as long as it’s plausible to assert that rates are simply pricing an economy that can handle (indeed, may need) higher rates to keep things in balance. Anything beyond that is an “excessive” financial conditions tightening impulse, which can cause indigestion for stocks and flip the equity/bond correlation such that the two assets sell off together.

Last month is a toss up in that regard if you ask me. The prevalence of the r-star debate certainly argued for the contention that rising yields were at least in part a function of a more robust growth outlook, but there were other factors in play too. Ultimately, stocks struggled with the increase in reals.

The other way rising long-end yields can go wrong is if any bear steepening becomes disorderly. Investors accumulated a metric ton of duration risk over a dozen years post-GFC. If the Fed (or any other developed market central bank for that matter) were to ever lose control of the long-end completely, the fallout could be disastrous. Through that lens, and considering how far policymakers were forced to push the envelope in terms of central bank-financed fiscal spending and the scope for that kind of arrangement to push up inflation expectations and long-end yields, it’s a miracle we made it through the last two years without a systemic calamity.