This week’s earliest price action underscored the peril inherent in leaning long duration into a trending bear steepener.

As expounded here at some length over the past several days, I doubt seriously the notion that the selloff at the long-end of the US Treasury curve can continue unabated in perpetuity.

That’s only barely a straw man. Bond bears have it in their heads that the (compelling) case for structurally higher yields may preclude (or at least raise the bar for) a rally in the event the US economy finally turns.

I don’t necessarily buy that. Estimating r-star is all art and no science, and what’s fair in terms of term premium is in some respects an “eye of the beholder” dynamic. Further, the supply story is old news.

It’s entirely plausible to suggest rational investors spent August reassessing the implications of a higher neutral rate and repricing the term premium to account for a bevy of bearish fundamental factors, including fiscal realities and supply concerns. What’s less plausible, in my view, is the idea that the process is best conceptualized as a work in progress — as though thoughtful market participants are constantly refining their neutral rate estimates and term premium demands, then factoring that into their decision-making process. In my experience, that gives market participants too much credit vis-à-vis their commitment to analytical rigor and level-headedness.

So, when I see an extension of the long-end selloff (and particularly a late-cycle bear steepener), I’m inclined to believe it’s indicative of stop-outs, momentum-chasing, mechanical trend-following and generalized “envelope-pushing” into an increasingly consensus view.

This week’s early selloff was pronounced enough to be visible on a YTD chart. 30-year yields were cheaper by 14bps.

There’s a supply overhang this week. Treasury sells twos, fives and sevens, and as much as $20 billion in IG issuance is on deck. Do note, though, that even if IG supply matches the high-end of this week’s expected range (estimates are between $15 billion and $20 billion), that’d still “only” bring total September issuance to $121 billion. That’s not nothin’, but this is September. It’s not as if it wasn’t expected. $120 billion would be in line with estimates for the month as they stood coming out of Labor Day.

Without taking a view on Treasury supply reception, the proximity of the front-end auction series this week felt unsatisfactory as an explanation for weakness at the long-end. Bidding metrics for this week’s supply are a referendum on near-term policy views, not long-term macro dynamics or the fiscal trajectory.

“Each of the supply events hold the potential to clear at the cycle yield highs which should ensure a baseline of dip-buying demand [but] there are a multitude of reasons to expect some otherwise would-be buyers will remain sidelined in anticipation of more attractive entry points,” BMO’s Ian Lyngen and Ben Jeffery remarked, referencing the threat of another hike this year and the prospect of a prolonged stay at terminal for the Fed.

Note that the bear steepener succeeded in pushing the 5s30s back into positive territory.

Commenting Monday, Nomura’s Charlie McElligott (aptly) described the duration tone as “brutal.” He cited a familiar litany of concerns, including “issuance realities as per fiscal deficit expansion,” speculation on a higher neutral rate and QT both from the Fed and the ECB (APP runoff).

“After cycle high rates have been achieved once again, the consistent conversation among clients has been what on the immediate horizon would be sufficient to inspire a bid in duration,” BMO’s Lyngen and Jeffery went on.

That’s the unanswered question. In the near-term, it’s possible that labor-capital friction in the US (i.e., strikes) and/or a government shutdown acts a shock, if not to growth itself (assuming strikes are resolved and any shutdown is short-lived, the impact on the economy would be fleeting), then at least to consumer confidence, which can be self-fulfilling. Over the longer-term, the answer is obviously a recession.

“Until macro data clearly [move] lower allow[ing] central banks wiggle room, ‘high-for-longer’ persists,” McElligott said. “And it’s tightening financial conditions.”