"US junk bonds see the worst drop in six months, and sensitive investors are starting to recall 2007."

The strong rally in the US junk bond market since the beginning of the year came to a sudden halt last Friday, recording the largest single-day price decline in six months. This was mainly due to Trump's plan to impose additional tariffs on China, which severely hit global financial market risk appetite, causing the bond market risk premium indicator to soar to near a four-month high of 304 basis points. The overall yield of the US junk bond market rose to 6.99%, the highest in over two months. It is worth noting that in addition to the overall price decline in the US junk bond market hitting a six-month low, the US credit market is also experiencing a series of troubling bond flash crash events. Some cautious investors have even started to pray: these are not the "harbingers of a new subprime crisis". As China announced broader new restrictions on the export of rare earths and other key mineral carriers and related technologies, and President Donald Trump threatened to impose huge tariffs on imports from China, the decline of junk bonds accelerated, intensifying concerns among global financial market investors about the political and trade relations between the world's two largest economies. In terms of junk bond price trends, the overall price decline last week was 0.73%, also the largest since April. With concerns about trade and tariffs between China and the US reigniting, the market downturn spread to all bond rating levels. Junk bond yields rose 15 basis points on Friday and 31 basis points for the week, the largest single-day and weekly rise in six months. The yield on "CCC-rated" junk bonds rose above 10% to a five-week high of 10.14%, with the spread measure expanding to a six-week high of 632 basis points. The spread climbed sharply by 32 basis points last Friday, also marking the largest single-day increase since April. The overall price of CCC-rated junk bonds fell 0.6% last Friday, marking the worst single-day performance in six months. The overall weekly price of CCC-rated junk bonds fell by 1.05%, also the largest weekly decline in six months. Typically, junk bonds, also known as high-yield bonds, refer to bonds with credit ratings far below the "investment grade". According to the Standard & Poor's and Moody's rating systems, bonds rated below BBB- or Baa3 are considered junk bonds. These high-yield bonds are usually issued by financially weaker companies or emerging, non-profitable enterprises, with a high risk of default. Therefore, they need to offer higher bond yields to attract investors and compensate for the additional higher risk they bear. With numerous negative signals flashing one after another, the market prays: please don't let this be a hint of the return of the "2007 subprime crisis". In addition to the overall price decline and spread widening of junk bonds in the US, the credit market is also experiencing a series of worrying flash crash events. From luxury retailer Saks to natural gas company New Fortress Energy, to subprime auto lender Tricolor Holdings and auto parts supplier First Brands Group, these bonds have dropped from face value to a few cents in a matter of days or weeks, with declines exceeding 80%. Junk bonds are not the same as subprime loans of the past, but both carry a high risk of default. Jason Mudrick, senior trader at distressed debt hedge fund Mudrick Capital Management, said: "These recent market collapses may be the canaries in the coal mine." Jason Mudrick believes that the excessive behavior accumulated in the market over the years is attributed to near-zero benchmark interest rates and stable growth, which have stimulated widespread corporate borrowing and encouraged lenders to take aggressive risks. "We are now seeing a complete collapse under extreme circumstances." Matt King, founder and global market strategist at Satori Insights, said, "We can say that many credits should have gone bankrupt, but have been kept afloat due to relaxed terms and ample continued liquidity. The problem is how long it will take for the market to discover this." Some senior market analysts indicate that the market is still in a phase of "repricing", not complete disordermeaning the recent sharp decline in the US junk bond market is more like "identifying the weakest links in credit risk", rather than the "eve of a systemic subprime crisis replay". However, if escalated tariffs drag down US economic growth, refinancing windows tighten, and non-bank finance experiences "redemptions-deleveraging" overall negative feedback, the situation may evolve from "scattered defaults" to a "widespread credit storm", requiring continuous adjustment based on data tracking. For example, it is necessary to focus on whether the high-yield OAS continues to exceed 500600bp, the CCC distress ratio, the success rate of primary market issuance/refinancing, the trajectory of HY/loan default rates, redemptions and "gates" of private credit funds, bank credit and replenishment for private credit, and CRE delinquency rates. If these indicators worsen simultaneously, the assessment of systemic financial risks needs to be upgraded.