At a time that U.S. stock markets are partying like there is no tomorrow, global bond markets, together with actions by the world’s major central banks, are telling a very different story. They seem to be warning that Europe could soon be experiencing major crises in the United Kingdom and Italy that could precipitate a global economic recession.

Stock-market investors would do well to pay heed to those warnings.

A clear sign that global bond markets are highly concerned about the European economic outlook is that a record US$5 trillion, or around half, of all European government bonds now offer negative interest rates. A clear sign that markets are concerned that Europe’s troubles could lead to a U.S. economic recession is that U.S. long-term interest rates are significantly below U.S. short-term interest rates. In the past, this so-called U.S. yield-curve inversion has consistently proved to be a highly reliable indicator of an impending economic recession and oftentimes an early warning of a sharp decline in the S&P 500 index

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To be sure, bond markets and the world’s central banks are generally sensitive to economic risks. However, what seems to have them now on high alert is that this time around there are an unusually large number of such risks, especially in Europe, that have a high chance of materializing. They are also concerned that if these risks were to materialize, they would have the potential to destabilize both the U.S. and the global economies.

Among the more immediate of these risks is that the United Kingdom, the world’s fifth-largest economy, could crash out of the European Union without a deal on Oct. 31. Both the Bank of England and the International Monetary Fund are warning that such an occurrence would most probably result in a 5% decline in the U.K. economy in the year immediately following its European exit. Considering how large a trade partner the U.K. for Europe, a hard Brexit would be bound to have significant spillover effects to a European economy that is already on the cusp of a recession.

Heightening the chances of a hard Brexit is the commitment by Boris Johnson, who is almost certain to become the next U.K. prime minister, to have the the country leave Europe with or without a deal on Oct. 31. That is when the U.K.’s extended deadline to negotiate a Brexit deal ends. Johnson is making this commitment to fend off a mortal challenge to the Conservative Party from Nigel Farage’s surging Brexit Party.

Seemingly, the only thing that can stop a hard Brexit would be a successful no-confidence vote in the government before Oct. 31. However, that would hold out the prospect that a very market-unfriendly Jeremy Corbyn, the head of the Labour Party, could become prime minister. This could seriously undermine U.K. investor confidence, especially if he continues to offer the same economic policy prescriptions for the U.K. that failed so badly in the 1960s.

Read: EU insists it will not reopen Brexit deal no matter who replaces Theresa May as British prime minister

A more serious, albeit less imminent, threat to the global economy is the risk of a new Italian sovereign debt crisis that would pose an existential threat to the euro’s survival. Italy would be very much more difficult to save than Greece, given that its economy is around 10 times the size of Greece’s. Having the world’s third-largest bond market, a serious Italian economic crisis is bound to reach our shores in much the same way as our 2008 Lehman crisis impacted the rest of the world.

Heightening the risk of an Italian debt crisis is the reckless policy path on which its populist government is embarked. At a time that the country is already saddled with Europe’s second-highest ratio of public debt to GDP, behind only Greece, the Italian government is insisting on the introduction of a large unfunded tax cut that would raise its budget deficit to around 5% of GDP.

It is also not helping matters that the Italian government is seriously floating the idea of issuing small-denominated bonds (dubbed Mini-BOTs, after the Italian term for Treasury bonds) that would have the same denominations as euro notes and that could be used to pay future tax liabilities. The introduction of such a parallel currency, which very well could occur if Matteo Salvini, now deputy prime minister, were to become prime minister, would be bound to undermine investor confidence in Italy’s commitment to continued euro membership.

Salvini, who heads the euroskeptic Northern League, is already threatening to pull out of the current coalition government and force new elections if he doesn’t get his way over proposed tax cuts. Given that his party got 34% of the vote in the recent elections for European Parliament — twice that of his coalition partner — a government with Salvini at the head is a likely scenario for later this year.

President Trump’ America First trade policy constitutes a further major source of risk to the European economy. In particular, his threat to slap a 25% import tariff on European automobiles sometime later this year could be the final straw that pushes an already ailing German economy into recession.

Read: Trump tariffs on China boomerang on American manufacturers, RBC contends

Sensing these risks, as well as that coming from heightened U.S.-China trade tensions, the world’s major central banks have become decidedly more dovish than before. Global bond markets, meanwhile, are anticipating that a weak global economy will lead to several interest-rate cuts in the year ahead.

A key question that stock-market investors should be asking themselves right now is whether they might be missing something that the central banks and the global bond markets are seeing.

Desmond Lachman is a Resident Fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging-market economic strategist at Salomon Smith Barney.

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