The 10-year minus 3-month yield gap turns to minus 40 basis points. In 6 of 8 past inversions a recession followed within 18 months; equities rose 12% on average over the 11 months after inversion, then fell 25%. Should a multi-asset fund de-risk now or wait? Compare the expected outcomes.

De-risk, but in stages: move the slice into short-term debt in thirds over the next six months. Across the eight episodes, holding averages -6.0% over two years against 15.3% for selling now, so the decision to de-risk is worth about 22 points, about Rs 161 crore on the slice. Timing within that matters far less: every selling plan averages within 4 points of the others. Staging captures some of the late rally while keeping the worst case at +14.0%.

Dark clouds on the horizon usually mean rain, but not in the next ten minutes; if you cancel the picnic the moment you see them you may miss a sunny afternoon. An inverted curve has a good record of preceding recessions, but it comes early: in these episodes equities kept rising for 11 months on average before the fall. So the fund faces two costs: selling now gives up the late rally, and waiting risks being caught in the fall, which is twice the size of the rally.

Selling now is simple: the slice earns 7.4% for two years, 15.3%, whatever happens. Holding through depends on the episode. In the six recession episodes holding averages -14.3%, and in the two without recession +19.0%, so across all eight it averages -6.0%. Selling gains 29.6 points when a recession comes and loses 3.7 points when it does not, so it wins on expected value whenever the chance of recession is above about 11%. Six of eight is far above that, and so is any sensible haircut to a sample of eight.

A little, on average, and at a rising cost in the bad cases. Waiting six months and then selling averages 17.0% against 15.3% for selling now, but its worst episode falls to +9.1%; waiting nine months drops the worst to -4.3%, and twelve months to -17.3%. The episode with the month-4 peak is the one that punishes patience: the market had already turned before the fund sold. Selling in thirds at 0, 3 and 6 months averages 16.4% with a worst case of +14.0%, close to the certainty of selling now.

Recommend the staged plan: one third of the slice into short-term debt now, a third in three months, a third in six. The big decision is not holding through; the timing within six months is worth one to two points and rests on six data points, so it should not be the thing the fund bets on. The inverted curve also helps: short-term debt pays more than the 10-year bond, so waiting in it costs nothing in carry. Add duration as recession evidence firms, because long bonds tend to rally when rate cuts arrive. Say the limits: eight episodes are a thin sample, past lead times need not repeat, and the curve's signal can be distorted when central bank bond buying has pushed long yields down. A trigger to accelerate, such as earnings forecasts turning down or credit spreads widening, keeps the plan responsive.