Bond Market Crack Widens; The Chasm Will Swallow Stocks

...AND EVERYTHING ELSE

The latest auction results left the 30-year U.S. Treasury bond yield at its highest point in nearly twenty years. Correspondingly, bond prices are at their lowest point since 2007. I referred to this in a previous article...

"It has been twenty years since bond prices traded below current levels, and, conversely, interest rates exceeded current levels. A drop in bond prices now will have consequences that younger investors are unfamiliar with and unprepared for." (see Bond Market Says It All)

What are some of those consequences?  Higher borrowing costs and stricter credit terms for individuals and businesses would curtail economic growth; in addition, all economic activity could be hampered severely. A weaker economy would lead to higher unemployment. More people out of work might spark social unrest.

The world economy functions on credit. If things get bad enough, we could find ourselves in the middle of a severe recession, or even a full-scale depression. Throw in some bankruptcies and bank failures, and it is not too difficult to see the possibility of another Great Depression. If that seems remote or unlikely, then consider the additional negative impact of a world war and trade tariffs.

WHAT ABOUT STOCKS? 

Stocks are headed for a fall. A collapse in bond prices could trigger an all-asset collapse. At this point, other assets such as cryptocurrencies, gold, and silver have dropped significantly from their recent peaks in 2025 and 2026. Enthusiasm for the next big thing (NFTs, cryptocurrencies, AI, etc.) waxes and wanes quickly.

Stock prices are bloated, and investors are unprepared for what is coming. For more about this, see my article Buffet's Cash Cache.

NOWHERE TO HIDE 

Under more normal circumstances, when stocks decline, investors often seek the relative safety of bonds. In this case, a falling bond market could be the trigger that sends stock prices lower, so where would investors turn if bond prices are dropping as fast or faster than stocks?

Cash and cash equivalents, such as money market funds and CDs. Short-term treasuries would be the best choice since bank failures would negate any special attraction for CDs and time deposits. Bankruptcies and default risk increase the risk of "breaking the buck" in money market funds, so again, T-bills get the nod.

CONCLUSION

It doesn't matter what you own at this point. The popping of investors' inflation-supported balloons (stocks, bonds, commodities, real estate, cryptocurrencies, etc) will be devastating.