What an inverted yield curve is, why it has preceded most US recessions since 1970, and how Anacleto turns it into a signal.
The yield curve thermometer is the difference between the 10-year and the 3-month US Treasury rates, in percentage points. Normally long rates are higher than short ones. When short rates rise above long ones the curve is inverted: markets expect rates, and often growth, to fall.
An inverted 10-year/3-month curve has preceded almost every US recession since 1970, usually by one to two years. The timing is loose: equities have often kept rising for months after the inversion.
A recession is not the same as a bear market, and the curve says nothing about how deep a fall would be. It is one of five thermometers, never a signal on its own. See credit spread for the other stress measure.