Credit markets are flashing red, and the cracks are widening. A financial storm is brewing, and the warning signs are impossible to ignore. High-yield bond spreads are diverging from investment-grade debt, a classic signal of growing default risk. This isn’t just a blip. This is the early tremor before the earthquake.
High-yield default rates have surged to 13.17%, a level that historically spells trouble. When credit markets tighten, liquidity dries up, and suddenly, those who relied on cheap debt to stay afloat find themselves gasping for air. Every major financial collapse starts this way.
Credit starting to crack.
Finally the Fed is about to wake up pic.twitter.com/1azfoGABPH— zerohedge (@zerohedge) March 31, 2025
The Federal Reserve has spent years postponing the inevitable, but this time, there’s no kicking the can further. Private credit, the darling of this cycle—is looking more and more like the subprime bubble of 2008. Trillions have been funneled into illiquid assets, artificially propped up by years of easy money. When reality hits, these positions won’t just drop in value, they’ll become unsellable. Markets can hide the truth for only so long before it all comes crashing down.
And then there’s Japan. The world’s third-largest economy is quietly drowning in debt. The Bank of Japan has been propping up its financial system for decades, but it’s reaching the breaking point. Japan is now facing a brutal choice: devalue its currency even further or start liquidating its holdings of U.S. Treasuries. Either scenario spells disaster. If Japan begins a fire sale of U.S. debt, it could set off a chain reaction—yields would spike, credit markets would freeze, and the cost of capital would explode overnight.
This is a systemic unraveling. A credit-driven collapse, fueled by a decade of reckless policy, is no longer a matter of if,but when.