Term premium
A 10-year yield bundles two things: the market's expectation of average short rates over the decade, plus a term premium — compensation for bearing duration risk and uncertainty. When inversion analysis talks about 'expectations', it quietly assumes the term premium isn't doing the talking.
Why it muddies the curve signal
Term premium has been negative for stretches of the past decade — investors paid to hold duration. That mechanically inverts the curve even with neutral rate expectations, which is part of the honest debate about whether inversion 'worked' in 2022–24 or measured something different.
Where it shows up
Bear-steepening episodes — like much of the 2023–24 normalization — are often term-premium repricing in disguise: long rates rising while rate expectations stay flat. Watching the composition of the curve move, not just its sign, separates signal from arithmetic.