While sifting through some material on the yield curves, I came across a framework that I found more useful than the usual “is it inverted?” discussion.
That question comes up a lot.
But on its own, it doesn’t really help with positioning. A far more practical way to utilize the curve is to ask the question:
“What part of the market cycle is it pointing to?“
Because that’s ultimately what matters for market positioning….
The Rebound Phase
(Early Cycle — Bull Steepening)
This is where things start to turn after turbulent/crash phase.
What you typically see on the curve:
- Bull Steepening
- Short-term yields fall faster than long-term yields
- The front end is being bid
In simple terms, market participants are moving into short-duration bonds.
Why?
Because policy begins shifting.
The market starts pricing in rate cuts or easier conditions, which pulls down short-term yields quickly.
That’s what steepens the curve.
But why does this matter?
This is usually the first sign that liquidity is coming back.
Lower front-end yields reduce the cost of capital.
Financial conditions ease.
And once that happens, capital starts moving back out the risk curve.
It’s not that everyone suddenly becomes bullish.
It’s that the pressure is removed.
That’s typically where:
- markets stabilize
- selling slows
- early positioning begins
The Calm Phase
(Mid Cycle — Bear Steepening)
This is where things feel “normal” again.
What you see on the curve:
- Bear Steepening
- Long-term yields rise faster than short-term yields
- The long end is being sold
So the curve steepens — but for a different reason.
But if we’re in the Calm Phase, why is the long end selling off?
At this stage, the market is no longer focused on easing.
It’s now pricing:
- stronger growth
- potentially higher inflation
- less need for long-duration safety
The market isn’t pushing yields up cause their optimistic about growth.
Why this signals calm
This isn’t panic selling. It’s reallocation.
Capital moves away from long-duration “safety” and into:
- equities
- credit
- other risk assets
In other words:
The market is comfortable taking risk again.
That’s why this phase tends to feel stable:
- trends are cleaner
- participation broadens
- volatility is lower
The Speculation Phase
(Late Cycle — Bear Flattening)
This is where things start to stretch.
What you see on the curve:
- Bear Flattening
- Short-term yields rise faster than long-term yields
- The front end is being sold
This is usually driven by tightening.
Central banks are raising rates, or at least the market is pricing that in.
That pushes short-term yields up quickly.
Time to Pay Attention
Liquidity is now being pulled out of the system.
But here’s the part that throws people off:
Markets often still go up in this phase.
That’s why it’s called speculation.
You’ll see:
- strong narratives
- aggressive positioning
- late-stage momentum
But underneath that, conditions are tightening.
This is where things start to become fragile.
The Turbulence Phase
(Slowdown — Bull Flattening)
This is where the shift becomes visible.
What you see on the curve:
- Bull Flattening
- Long-term yields fall faster than short-term yields
- The long end is being bid
Market participants are moving back into long-duration bonds.
Why?
Because growth expectations are weakening.
The market starts pricing:
- slowdown
- potential recession
- a move back toward safety
Long-term bonds get bought, pulling yields down.
What this signals
This is where:
- volatility rises
- risk gets repriced
- positioning starts to unwind
It’s no longer about chasing returns.
It’s about preserving capital.
Putting It Together
The cycle tends to move like this:
Rebound → Calm → Speculation → Turbulence → Rebound
And the yield curve reflects that progression:
- Bull Steepening → Early Cycle
- Bear Steepening → Mid Cycle
- Bear Flattening → Late Cycle
- Bull Flattening → Slowdown
Final Thought
You don’t need to forecast the next move in the yield curve.
You just need to recognize what phase it’s pointing to.