Bond yields have turned upside down again – short-term rates are higher than long-term rates. This is historically one of the most accurate predictors of a recession.

What is a recession and why is it happening?

A recession is a decline in economic activity when a country's GDP falls for two consecutive quarters.

At that time:

• Companies are starting to cut costs and lay off employees.

• Loans are getting expensive as the Fed raises rates.

• Consumers are spending less as confidence in the economy declines.

Usually, a recession does not occur immediately, but develops gradually.

Why is there an inversion of the yield curve?

In a normal situation, long-term (10-year) bonds yield higher yields than short-term (3-month) ones.

Investors demand a risk premium, because a long time means more uncertainty.

But when the yield curve turns over:

• The Fed raises interest rates, making short-term bonds more profitable.

• Investors are afraid of a recession and start buying long-term bonds, reducing their yields.

Thus, the inversion of the curve is a signal that the economy is slowing down, and the market is waiting for a rate cut in the future.

How long does a recession take after an inversion?

Inversion does not immediately lead to a crash. Historically, a recession occurred after 7-18 months.:

• 2000 – inversion in January, dotcom crash in March 2001 (14 months).

• 2006 – inversion in August, financial crisis in December 2007 (16 months).

• 2019 – inversion in August, COVID crisis in March 2020 (7 months).

What does it mean now?

The market may continue to grow for 9-10 months before the collapse.

Bitcoin, stocks and risk assets may show a final surge before the economic slowdown.

But later, a reversal is possible.

Inversion is not a “crash the market now” button, but a timer until problems appear.

Keep an eye on liquidity and macro data, and remember: the market falls not when things are bad, but when they stop getting better.