Bond Market Crisis: Why This Looks Just Like 2007-2008 All Over Again

With markets relatively calm this week as everyone awaits Powell’s Jackson Hole speech on Friday, I wanted to update you on some critical fundamental developments that are setting up what could be one of the most significant market moves we’ve seen in years.

I recently stumbled upon a chart of Chinese government bond yields with a clown’s rainbow hairdo.

The word is getting out, and more and more people are starting to realize what’s really happening in global bond markets. What’s behind that colorful crash tells a much darker story about the state of the global economy.

The bond market is flashing warning signals that I haven’t seen since the months before the 2008 financial crisis. What’s happening right now in both Chinese and US credit markets is creating the perfect storm for a major USD rally and a devastating decline in precious metals and mining stocks.

Let me walk you through why this situation is so dangerous—and why it’s likely to be very bullish for the dollar while crushing gold (temporarily, but still), silver, and copper.

China’s Bond Market Is in Full Crisis Mode

Here’s something you don’t see every day: China’s central bank is actually fighting against their own bond market rally. Chinese 10-year government bond yields have crashed to just 1.613%—so low that the People’s Bank of China has been forced to stop buying bonds entirely.

Think about that for a moment. When was the last time you saw a central bank actively trying to prevent bond prices from rising? This is the monetary policy equivalent of a fire alarm going off.

The reason is simple: China’s economy is falling apart. They’ve had 33 consecutive months of declining producer prices. New household loans in early 2025 hit their lowest level in 20 years. Property prices are down 4.8% year-over-year, destroying $18 trillion in household wealth.

Chinese investors are so desperate for safety that they’re parking everything in government bonds, driving yields to crisis levels. The PBOC knows this is unsustainable—it’s creating massive pressure on their currency and threatening financial stability.

The gap between US and Chinese 10-year bond yields is now over 300 basis points. That’s enormous, and it’s creating capital flow pressures that will eventually force major moves in currency markets.

US Credit Markets: Welcome Back to May 2007

Now here’s where it gets really scary. US high-yield credit spreads are sitting at 2.88% – a level we’ve only seen a few times in history. The last time? May 2007, right before the financial crisis.

This is almost exactly what happened before 2008. Credit spreads were compressed to dangerously low levels while underlying fundamentals were already deteriorating. Credit card delinquencies are at their highest levels since 2011. Auto loan defaults are at their highest since 2010.

Yet corporate bond spreads remain near historic lows. This is classic pre-crisis behavior—markets are simply not pricing in the real risks.

When Trump announced tariffs in April, investment-grade corporate spreads jumped 8 basis points in a single day—the biggest move since the 2023 banking crisis. That was just a taste of what’s coming when credit markets finally wake up to reality.

Why the Dollar Is About to Explode Higher

I know the USD has been weak this year—down over 10%—but that’s about to change dramatically. Here’s why:

During financial crises, everyone needs dollars. It doesn’t matter if the crisis starts in the US (like 2008) or elsewhere. When markets panic, there’s a scramble for dollar funding that creates massive buying pressure.

We’re already seeing early signs. Cross-currency basis swaps are showing persistent dollar funding premiums. During 2008, these spreads exploded wider as everyone fought to get dollars. EUR/USD basis hit -364 basis points during the peak stress.

The Chinese situation makes this even more likely. If China’s economy continues deteriorating and bond market stress spreads globally, we’ll see massive safe-haven flows into US assets regardless of domestic US conditions.

Think about it: where else can global investors park trillions of dollars? Some might point to gold—and they’d have a point. Central banks have been massive buyers, purchasing over 1,000 tons annually for three straight years. China, Poland, Turkey, and others have been aggressively building reserves, with gold now representing 19% of global central bank reserves—making it the second-largest reserve asset after the dollar.

But here’s the crucial point: gold was available to be also in 2008, yet the USD still soared while gold declined during the acute crisis phase. Central bank gold buying provides long-term support, but during acute financial stress, dollar funding shortages create overwhelming near-term pressure that even gold’s safe-haven status can’t overcome.

The US Treasury market remains the only game in town for large-scale, liquid safe-haven flows during crisis periods.

Copper’s Collapse Tells the Real Story

Copper has crashed 21% in just the past month to $4.41 per pound, largely driven by Trump’s tariff announcements that spooked industrial demand. More significantly, copper has now fallen back below its 2011 nominal high—a major technical breakdown that suggests much deeper problems ahead.

Copper also broke decisively below the rising red support line – the breakdown is now more than verified. Technically, copper is poised to plunge.

Here’s something most people don’t understand: Chinese companies have been using copper imports for financing as well as actual industrial use. When credit conditions tighten, this demand disappears completely. That’s exactly what’s happening now.

The interest rate environment is making everything worse. Higher rates have pushed commodity markets from backwardation into contango, making it expensive to store copper. Storage and financing costs are directly affected by interest rates—every 100 basis points costs 15-25% more annually.

The copper-to-gold ratio is collapsing, which historically has been a leading indicator for Treasury yields. This suggests we’re heading for even more economic weakness ahead.

What This Means for Gold and Mining Stocks

Now, here’s where it gets interesting for precious metals investors. While all this chaos might seem bullish for gold in the long run, the short and medium-term picture is likely to be very different.

Here’s what most gold investors don’t want to hear: gold declined significantly during the 2008 financial crisis, especially in the early stages. Why? Because USD strength overwhelmed safe-haven demand.

Technically, gold is already after a confirmed, and verified breakdown.

Most importantly from the medium-term point of view, though, when the dollar rallies hard—which is what happened in 2008 and what I expect to happen again—it creates massive headwinds for gold. Gold will rise back from the crisis like Phoenix from ashes, but not without declining first.

In other words, my gold price forecast for August 2025 remains bearish.

Thank you for reading today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more (and extra details not available to 99% investors), I invite you to stay updated with our free analyses – sign up for our free gold newsletter now.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief