Forget Stocks: Why the Bond Market Is the Real Threat to the Economy

All eyes are on the stock market right now. And why wouldn’t they be? Over the past two months, the S&P 500 has crashed 20% in one of the sharpest selloffs in modern history. We’ve seen some of the worst days ever recorded on Wall Street – and even one of the best, too. 

Stocks are ricocheting back and forth like they’re trapped in a pinball machine. The Nasdaq swings 4% up one day, 5% down the next. It’s enough to make investors melt down.

But here’s the thing nobody seems to be talking about: The stock market isn’t the real risk right now. The bond market is.

And if we don’t get some relief there soon, we’re staring down the barrel of a potentially apocalyptic economic scenario…

For example, the 10-year U.S. Treasury yield is often called “the most important number in finance.” It’s not just a benchmark rate for Wall Street traders. It’s the foundation of nearly every major financing rate in America.

Mortgages, auto loans, student and personal loans, and credit cards are all tied to it.

Indeed, the entire U.S. consumer credit system leans on that number.

So, when the 10-year moves, everything does.

And over the first few weeks of April, the 10-year took off, spiking from 3.8% to 4.6% in just a few days – one of the most violent upward moves in modern market history.

That may sound abstract. But here’s what it really means:

• Mortgage rates will surge above 8%.
• Auto financing rates will punch past 9%.
• Personal loan interest rates will spike into the double digits.
• Credit card APRs will flirt with 30%.

All this in the middle of a slowing economy…

Why Surging Bond Yields Are a Huge Problem for the Economy

In every major recession, bond yields fall. That’s the natural cycle. 

When things get bad, investors flock to safety. They buy U.S. Treasuries, which pushes yields down. Lower yields mean lower financing rates, which support consumer borrowing and help resuscitate demand.

For instance, during the 2008 financial crisis, the 10-year collapsed from 4.2% to 2%. And during 2020’s COVID Crash, it nosedived from 2% to 0.5%.

In both cases, the plunge in yields unlocked the economy’s natural shock absorbers – cheap mortgages, affordable car loans, and low-interest personal debt.

But this time, those shock absorbers are failing.

As we outlined in yesterday’s issue:

• Consumer confidence is near a 50-year low. According to the University of Michigan’s latest survey, consumer sentiment plunged 11% this month to 50.8 – a 12-year low and the second-lowest level on record since 1952.
• Retail sales are slowing, especially on a core basis. Though sales surged 1.4% in March, this uptick is likely temporary as consumers attempt to ‘frontload’ tariffs. In February, retail sales rose 0.2%, much lower than the 0.7% increase economists projected.
• Business investment has stalled, down $130 billion from Q3 to Q4 of 2024. 
• The housing market is frozen solid. Data from the National Association of Realtors shows that existing home sales fell 1.2% year-over-year.

And now bond yields are spiking.

That’s not how this is supposed to go.