🔍 What the Graph Shows

• Y-Axis: Yield spread (10-Year Treasury minus 3-Month Treasury).

• X-Axis: Timeline from early 1980s to early 2023.

• Zero Line (0%): The black horizontal line marks when the yield curve is flat.

• Below 0%: Indicates yield curve inversion, a common recession indicator.

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🧠 Key Insights from the Graph

1. Yield Curve Inversion as a Precursor to Market Crashes

Each time the blue line dips below the black horizontal line (zero), it marks an inversion of the yield curve. Historically, these inversions have preceded major Nasdaq crashes, as highlighted:

• 1989–1990:

  • Inversion: 9 Jun 1989 (-0.35%)

  • Nasdaq Crash: Down 33% (Oct 1989 to Oct 1990)

• 2001–2002 (Dot-com Crash):

  • Inversion: 2 Jan 2001 (-0.95%)

  • Nasdaq Crash: Down 78% (Jan 2001 to Oct 2002)

• 2007–2009 (Global Financial Crisis):

  • Inversion: 27 Feb 2007 (-0.64%)

  • Nasdaq Crash: Down 56% (Oct 2007 to Mar 2009)

• 2019–2020 (COVID Crash):

  • Inversion: 28 Aug 2019 (-0.52%)

  • Nasdaq Crash: Down 33% (Feb 2020 to Mar 2020)

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2. Current Warning Signal

• Latest Inversion: 18 Jan 2023 at -1.32%, the deepest inversion in the observed 40-year span.

• This could indicate potential future market distress, although timing and severity are uncertain.

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📊 Interpretation from VS Fintech Pvt Ltd

"Historically, an inverted yield curve has been a reliable early warning for potential economic slowdowns and major equity market corrections. This graph shows that each time the 10Y–3M spread dipped below zero, a significant Nasdaq downturn followed within months to a couple of years. As of January 2023, the inversion reached its deepest point in decades, signaling heightened caution for investors. While past performance doesn't guarantee future outcomes, data-driven risk management becomes crucial in such environments."