Readers have heard a lot (too much, maybe) from me on the bear steepener over the past two months.

To briefly recapitulate, the reason you “fear the re-steepening” after an inversion is simple: It’s typically a bull steepener, as the front-end rallies to acknowledge early evidence of recession and increased likelihood of Fed cuts over the medium-term. Recessions are bad. So, when the curve bull steepens out of inversion, it’s trouble.

Bear steepeners have been generally bullish for risk assets in the post-GFC world because that macro regime (God rest its soul) was defined by disinflation and central banks’ efforts to combat deflation risk. So, if the long-end was selling off (i.e., yields rising) it was often a referendum on policymakers’ success. If breakevens were up, that was indicative of fading deflation odds, and if reals were up, that could be ok too as long as it was possible to suggest rates were adjusting to an improved outlook for growth.

The current bear steepener is vexing. For one thing, we’re supposed to be late-cycle. For another, it’s predicated on a sharp repricing in the term premium, which reflects price sensitive investors demanding compensation for the myriad risks that go along with locking up your money for a decade or more. Relatedly, higher long-end yields reflect a shifting buyer base for Treasurys amid increased supply to fund deficits run up by a government which is exhibiting signs of acute institutional decay.

So, in addition to being out of place (i.e., occurring late-cycle and after the final, or at least the penultimate, Fed hike), this is a nefarious bear steepener, and equities are treating it as such of late. The main worry is that between resilient growth data, stubborn services inflation and supply/demand realities in Treasurys, there’s every reason for it to extend, likely to the detriment of equity valuations.

If you’re wondering whether we’ve ever seen a bear steepener after the end of a tightening regime, the answer is yes. Once. In 1969.

Back then, 10-year yields “continued to rise and the curve bear steepened for around three months” after peak tightening, JPMorgan’s Nikolaos Panigirtzoglou wrote, in his latest.

“In principle, this might suggest the current bear steepening that started post- the July Fed hike could be exhausted by the end of this month,” he said.

He added a caveat. In the 1969 cycle, a recession began around that same three-month mark. So, it’s hard to say whether the bear steepener petered out or was simply disrupted by the presence of a downturn. Panigirtzoglou ventured that the analogue “suggest[s] the current bear steepening might continue until there are clearer signs of a downshift in growth.”

The chart below, from Panigirtzoglou, shows the S&P (as well as aggregate index earnings) during recessions, with the downturns categorized as “deep” or “mild” depending on whether earnings fell by more or less than the median amount.

As a quick aside: I haven’t checked the figures in that table for accuracy and I’d like to think I don’t have to. Sometimes, when you’re trying to compare and contrast episodes separated by decades, disparities can arise. I’m not suggesting there’s anything wrong with these figures. All I’m saying is that I’ve learned through experience that trying to replicate these kinds of tables can be frustrating and not worth the effort. So, I present them “as is” to save time.

“In terms of risk assets, once signs of recession start emerging and using the 1969 US recession as a guide, the picture we get is of equity market declines up to six months after the start of the recession, but a quick recovery after that,” Panigirtzoglou went on, adding that “credit markets lagged with the peak in corporate credit spreads happening 6-12 months after the recession started.

Let me say, in closing, that you don’t need any historical analogue to know how the current bear steepener ends. There are four possibilities, and a resolution could be a combination of some or all of them: 1) The US macro data rolls over, 2) the coupon supply/demand outlook miraculously becomes less daunting, 3) shorts are forced to cover or 4) there’s a geopolitical shock large enough (i.e., scary enough) that the haven appeal of USD duration simply takes precedence over supply concerns, at least until the world becomes a safer place.