Bond Market Disaster: Why This Appears to be like Simply Like 2007-2008 All Over Once more…

The reason being easy: China’s economic system is falling aside. They’ve had 33 consecutive months of declining producer costs. New family loans in early 2025 hit their lowest degree in 20 years. Property costs are down four.eight% year-over-year, destroying $18 trillion in family wealth.

Chinese language traders are so determined for security that they’re parking every part in authorities bonds, driving yields to disaster ranges. The PBOC is aware of that is unsustainable—it’s creating large stress on their forex and threatening monetary stability.

The hole between US and Chinese language 10-year bond yields is now over 300 foundation factors. That’s monumental, and it’s creating capital stream pressures that can finally pressure main strikes in forex markets.

US Credit score Markets: Welcome Again to Could 2007

Now right here’s the place it will get actually scary. US high-yield credit score spreads are sitting at 2.88% – a degree we’ve solely seen a number of instances in historical past. The final time? Could 2007, proper earlier than the monetary disaster.

That is nearly precisely what occurred earlier than 2008. Credit score spreads have been compressed to dangerously low ranges whereas underlying fundamentals have been already deteriorating. Bank card delinquencies are at their highest ranges since 2011. Auto mortgage defaults are at their highest since 2010.

But company bond spreads stay close to historic lows. That is traditional pre-crisis conduct—markets are merely not pricing in the actual dangers.

When Trump introduced tariffs in April, investment-grade company spreads jumped eight foundation factors in a single day—the most important transfer for the reason that 2023 banking disaster. That was only a style of what’s coming when credit score markets lastly get up to actuality.

Why the Greenback Is About to Explode Larger

I do know the USD has been weak this yr—down over 10%—however that’s about to vary dramatically. Right here’s why:

Throughout monetary crises, everybody wants . It doesn’t matter if the disaster begins within the US (like 2008) or elsewhere. When markets panic, there’s a scramble for greenback funding that creates large shopping for stress.

We’re already seeing early indicators. Cross-currency foundation swaps are displaying persistent greenback funding premiums. Throughout 2008, these spreads exploded wider as everybody fought to get . EUR/USD foundation hit -364 foundation factors throughout the peak stress.

The Chinese language scenario makes this much more doubtless. If China’s economic system continues deteriorating and bond market stress spreads globally, we’ll see large safe-haven flows into US belongings no matter home US circumstances.

Give it some thought: the place else can international traders park trillions of ? Some may level to gold—and so they’d have a degree. Central banks have been large consumers, buying over 1,000 tons yearly for 3 straight years. China, Poland, Turkey, and others have been aggressively constructing reserves, with gold now representing 19% of world central financial institution reserves—making it the second-largest reserve asset after the greenback.

However right here’s the essential level: gold was out there to be additionally in 2008, but the USD nonetheless soared whereas gold declined throughout the acute disaster section. Central financial institution gold shopping for gives long-term help, however throughout acute monetary stress, greenback funding shortages create overwhelming near-term stress that even gold’s safe-haven standing can’t overcome.

The US Treasury market stays the one sport on the town for large-scale, liquid safe-haven flows throughout disaster durations.

Copper’s Collapse Tells the Actual Story

Copper has crashed 21% in simply the previous month to $four.41 per pound, largely pushed by Trump’s tariff bulletins that spooked industrial demand. Extra considerably, copper has now fallen again beneath its 2011 nominal excessive—a significant technical breakdown that implies a lot deeper issues forward.