Panic on Wall Street as experts warn bond turmoil could CRASH stock market: Here’s how it threatens your investments and what you must not do

Wall Street is facing a new threat that could send stocks plunging – and this time, the trouble is coming from the bond market.

That might sound like a problem for bankers and tycoons rather than ordinary Americans, but turmoil in the bond market can quickly find its way to your wallet.

Bonds are essentially IOUs issued by governments and companies to raise money.

When investors demand higher returns to buy those bonds, borrowing becomes more expensive across the economy – affecting everything from businesses taking out loans to households paying mortgages and credit cards.

Right now, investors are demanding much bigger returns. Case in point: The return they want – or yield – on the benchmark 10-year US Treasury is climbing above 5 percent for the first time since June 2007.

The move has rattled Wall Street, and market commentators are asking whether a continuing bond sell-off could eventually turn into something much bigger – a stock-market crash.

Bret Kenwell, US investment analyst at eToro, told the Daily Mail that higher Treasury yields are already creating problems for stocks.

‘While stocks can withstand higher rates, the recent rise in Treasury yields can create a short-term headwind for equities,’ Kenwell said.

‘The pressure is compounded by higher oil prices and the prospect of additional Fed hikes, giving investors reason for caution as the fourth quarter begins.’

He stressed, however, that investors should not assume a crash is inevitable.

‘Still, resilient earnings and a strong consumer have supported markets through similar stretches before,’ he said. ‘If a pullback emerges, it could ultimately create a longer-term opportunity.’

The warning comes as bond traders contend with a combination of strong economic data, persistent inflation pressures, high government borrowing and higher oil prices.

For ordinary investors, the basic problem is relatively simple.

US government bonds are generally viewed as very safe investments, so when they offer better and better returns, investors have less incentive to take risks elsewhere.

That can put pressure on stocks, particularly expensive technology companies whose valuations depend partly on expectations of profits many years into the future.

Higher yields can also make it more expensive for companies to borrow money, while elevated interest rates can push up the cost of mortgages, credit and other loans for households.

That is why a problem that starts in the bond market can eventually find its way into stocks – and potentially the wider economy.

The latest turmoil has prompted increasingly gloomy commentary from traders and market watchers online.

Market commentator Quoth the Raven, who has a large following on X, has warned that the bond market could be heading for a much more serious breakdown, pointing to the enormous US debt burden.

The federal government must continually refinance its debt, meaning higher interest rates can increase the cost of servicing that borrowing.

At the same time, companies are spending heavily to fund the extraordinary artificial-intelligence boom.

The US government needs investors to buy its debt, while technology companies need enormous sums to build data centers, computer chips and other infrastructure required to power AI.

Jonathan Moyes, head of investment research at Wealth Club, said this AI spending is an important part of the current picture.

‘The demand for artificial intelligence is an important point,’ he told the Daily Mail. ‘The theme is sucking in an enormous amount of capital as companies race to build out the infrastructure needed to meet the demand for AI.’

Moyes said there is a view in the market that this additional demand for capital could push bond yields higher because other assets need to offer more attractive returns to compete for investors’ money.

Tim Armitage, investment strategist at Quilter Cheviot, likewise said several forces are behind the bond sell-off.

Energy prices are rising because of the war in Iran, putting upward pressure on inflation, while increased corporate bond issuance – particularly from technology companies funding capital expenditure – has added to the supply of bonds available to investors. Meanwhile, government debt remains extremely high.

‘Were bond yields to continue to rise, at some stage this may put pressure on other asset classes such as equities,’ Armitage said.

But he stressed that the size of any impact would depend on what is driving yields higher and how central banks respond.

There is another threat investors are watching closely: oil.

Peter Schiff, chief economist and global strategist at Euro Pacific Asset Management, warned this week that oil prices could rise further even if the Iran war ends.

Speaking to Fox News Digital, Schiff predicted an economic ‘downturn’ and said he expects oil prices to head significantly higher. He described elevated energy costs as a ‘tax on the economy,’ warning that diesel prices could affect transportation, agriculture and ultimately the cost of goods. 

Higher oil prices could therefore make the inflation problem even harder for the Federal Reserve to tackle. There are already signs Wall Street is becoming more sensitive to every move in Treasury yields.

Strong US business-activity data has increased expectations that the Federal Reserve could raise interest rates again, while higher oil prices have added to fears that inflation could remain stubborn. 

So what should ordinary investors actually do if the stock market starts falling? The message from the experts is notably less dramatic than some of the warnings circulating online: don’t panic.

Moyes has urged investors to remember that there have been many false predictions of impending market doom before, and there will be many more.

For long-term investors, that means avoiding the temptation to make sudden decisions simply because stocks have fallen sharply over a few days or weeks.

Instead, investors should consider whether their portfolios are appropriately diversified for their own circumstances and time horizons, rather than trying to guess exactly when the market will hit a top or bottom.

Selling in a panic can turn a temporary paper loss into a permanent one, while trying to jump back into the market at precisely the right moment is notoriously difficult.

That does not mean investors should ignore their finances. Someone who needs their money in the short term, has taken on too much risk or is heavily concentrated in one stock or sector may need to reassess their position.

But for a long-term investor with a diversified portfolio, the message from the experts is broadly to stay the course rather than react emotionally to every market swing.

Kenwell similarly cautioned against assuming that a pullback would automatically become a crash, pointing to resilient corporate earnings and a strong consumer as factors that have supported markets through previous periods of stress.

The last time the 10-year Treasury yield broke above 5 percent was in the run-up to the global financial crisis, although that does not mean today’s move will produce the same result.

The bond yield itself was not the direct cause of the 2008 crash, and today’s economic conditions are different – and a stock market sell-off does not automatically mean the economy is heading for a recession or crisis.

But a prolonged decline in share prices could hurt household wealth, particularly because millions of Americans have exposure to stocks through retirement accounts and other investments.

For now, Wall Street is getting a warning rather than a crash. The big question is whether the sell-off in bonds lights the fuse for a much bigger crash.