Yield curve under siege?

In the last couple of weeks we have witnessed a dramatic change in the shape of the U.S. yield curve which has shifted from being inverted to upward sloping. In previous cycles, an inverted yield curve was an almost perfect predictor of an impeding recession, but this time around, despite the slowdown in the U.S., a full blown recession is unlikely (although a fat tail event that would trigger the "great unwind" is not altogether impossible). Again, we can credit the paradigm shift for the shape of the yield curve, the recent sell off in the fixed income market reflects growing concerns on global growth and the rising risk of inflation. Normally, the yield curve should reflect the health of the local economy (especially in the U.S. which still commands the largest economy in the world), but instead what we are seeing here is a yield curve that is moving in sync with others so that it can remain competitive (not surprising considering that the U.S. is a net debtor nation and imports significantly more than it exports). The worry here is that if the yield curve continues rising, it could precipitate the slowdown by introducing further strains into the already battered housing market, make it more expensive for businesses to borrow and apply the breaks on the bustling LBO activity. With the amount of unquantifiable leverage circulating, a catastrophic "great unwind" could well be within reach.