The key question on the heels of this summer’s dramatic escalation in what’s now the worst long-end US bond selloff in a generation, is when something will break.

A kind of corollary asks when we can expect to see the recessionary bull steepener.

Remember, you don’t fear the inversion, you fear the re-steepening, and the rationale is straightforward: The bull steepener means investors are anticipating rate cuts typically because the market suspects something is about to wrong (or in some cases because something already has).

The problem this cycle is that economic resilience and the Fed’s visceral fear of “that 70s show,” is preventing the front-end from rallying. But the twos-led character of the ADP-inspired mid-week reprieve for otherwise beset US Treasurys was a reminder that all “higher-for-longer” posturing aside, short-end yields will respond to signs of economic weakness.

Given the read-through of the bear steepener for financial conditions and the economy, it’s entirely plausible to suggest the historic (and in many respects anomalous) long-end selloff is setting the stage for a comparatively “normal” pre-recession bull steepener.

On Thursday, Nomura’s Charlie McElligott mentioned that prospective sequencing. “This recent monster bear-steepening in cash UST curves… creates the conditions for FCI tightening knock-on into the eventual ‘growth shock,'” he wrote. “As such, I can absolutely make the case for a bull steepener as the next move from here if [the labor market] begins to further break down and suddenly shift[s] US consumer behavior.”

This is a challenging call in terms of timing. Steepeners have worked of late, but for the “wrong” reasons if you’re playing for a more traditional late-cycle disinversion.

The 2s10s was above -30bps mid-week, and as noted above, the Wednesday move was a bull steepener. But as BMO’s Ian Lyngen and Ben Jeffery pointed out, the fact that it “came at the tail-end of a significant bear steepening run,” made it difficult to classify.

“Eventually the real data will roll over and this will all resolve in a rally in twos and a steeper curve as investors concede the Fed will need to respond via less restrictive monetary policy,” BMO’s team wrote, noting that such an eventuality “isn’t a matter of outcomes,” but rather a matter of time.

Until then, though, “the best the steepener camp can hope for in pursuit of an upward-sloping yield curve is a term-premium driven selloff in duration coupled with well-anchored twos punctuated by the rallies such as Wednesday’s move,” they added.

I’ve pounded the table on that for a week or two and, as noted on multiple occasions, it’s profoundly unsatisfying for anyone waiting on the disinversion process to play out. A term premium-driven long-end repricing predicated on fiscal worries, a structural reset in potential growth and a higher r-star set against a stubborn front-end is the opposite of the “clean” recessionary bull steepener that’d suggest a very murky macro quandary is in the process of resolving in familiar fashion.

“The late-cycle bear steepening that has characterized the repricing of the last three weeks represents the greatest puzzle from our perspective,” Lyngen and Jeffery went on.

As ever, it all hinges on the labor market as both a proxy for lingering excess demand in the economy and as a barometer for wage-price spiral risk. If and when the jobs data finally turns, the front-end and belly can “rationally lead the bond rally, reversing the ‘economic resilience’ theme of the past six months,” McElligott remarked.

At that point, markets would begin to pull forward whatever’s left of rate-cut pricing for 2024, or even add a cut or two. Dot plot be damned.