Will the debt market explosion trigger the next financial tsunami? Wall Street big short Peter Schiff warned: US debt pressure escalates, the stock market and the cryptocurrency market will suffer a "bloodbath".

During a period of intense volatility in risk assets watched by global investors, well-known pessimistic economist Peter Schiff recently issued a stern warning: the next global financial tsunami will not originate from the turmoil in the cryptocurrency market, but rather from the seemingly calm U.S. treasury bond market. This prominent investor, who has long been bullish on gold, bluntly stated in his latest podcast that the collapse in the U.S. treasury market could trigger a chain reaction affecting the stock market, real estate, and even cryptocurrencies. He expects that as various risk assets simultaneously pull back, investors will eventually flee these areas and turn to gold for refuge. The real collapse will begin in the bond market Schiff warned that cracks are already appearing in the bond market. Currently, the yield on U.S. 10-year treasury bonds hovers around 4.57% while the yield on 30-year treasury bonds has exceeded 5%. In his view, this is just the beginning, and both have the potential for significant increases. "Rising yields will push up borrowing costs across the board," Schiff pointed out, which will directly apply pressure on stock market valuations and worsen the already dire housing affordability crisis. According to the latest weekly survey by Freddie Mac, the average interest rate on 30-year fixed-rate mortgages in the U.S. has reached 6.49%, causing many potential homebuyers to be locked out of the market. He further analyzed that once there is a deep decline in the real estate sector, the Federal Reserve will be forced to intervene to prop up the market, which means a new round of currency issuance and greater inflationary pressure. The warning signals in the bond market originate from the East: the chain reaction of soaring Japanese yields Schiff's concern about U.S. treasury bonds is not an isolated voice. Roger Montgomery of Montgomery Investment Management also issued a similar warning, believing that the U.S. stock and bond markets are on a dangerous collision course. Against a backdrop of stubborn inflation, the yield on U.S. 2-year treasury bonds has surpassed the federal funds rate a technical signal that has accurately predicted every rate hike by the Federal Reserve over the past thirty years. "The Fed is almost backed into a corner. If they hesitate to raise rates, the bond market will face even more intense selling pressure due to lagging behind the inflation curve," Montgomery said. However, the variable that is more likely to disrupt the fragile balance comes from Japan. The benchmark 10-year Japanese government bond yield recently exceeded 2.9%, reaching a high not seen in over thirty years, and suffered nine consecutive days of selling, marking the longest continuous decline in nearly twenty years. While the absolute value of 2.9% is much lower than the U.S. bond yield of 4.57%, the structural changes in the interest rate landscape of Japan, the world's third-largest bond market, are triggering a seismic shift across markets. The core mechanism of this seismic shift is yen carry trade. For many years, investors have borrowed yen at extremely low cost and invested in assets with higher yields. As the Bank of Japan gradually raises interest rates and pledges to reduce support for the bond market, coupled with multiple direct interventions in the foreign exchange market by the Japanese Ministry of Finance, the financing side of the carry trade is now reversing. A scene from August 2024 still haunts the market: when the Bank of Japan unexpectedly raised interest rates and weak U.S. employment data, the yen rose sharply, leading to a single-day plunge of 12.4% in the Nikkei 225 index, the largest since the "Black Monday" of 1987, and the S&P 500 index also dropped 8.5% in a matter of days. "(At that time) the market stabilized in a week, so this event was brushed off as a one-off occurrence. But that's not the case," financial commentator Michael Gayed reminded. Today, the same risk architecture is taking shape again, and pressure may be even more severe. Japanese life insurance companies and pension funds hold $1.2 trillion worth of U.S. treasury bonds, making them the largest foreign holder of U.S. bonds. In the first quarter of this year, Japanese investors have withdrawn nearly $30 billion from U.S. government bonds, agency bonds, and municipal bonds, marking the largest quarterly selling volume since 2022. Albert Edwards, global strategist at the French Industrial Bank, posed a soul-searching question: "If the 10-year Japanese government bond yield continues to rise and converges to the U.S. level of 4%, do you really think U.S. stocks can maintain a forward price-earnings ratio of over 20 times? I have serious doubts about this." How will the market withstand the impact of the bond market? If a bond market storm indeed radiates outward starting from Japan and spreads to the U.S. through arbitrage trading unwind and selling of U.S. bonds, global asset classes will face a violent repricing. U.S. stocks and cryptocurrencies are set for a correction Data compiled by Montgomery shows that the current surge in U.S. stocks is largely driven by artificial intelligence (AI) and semiconductor giants. If we exclude the technology, media, and telecommunications sectors, most stocks in the S&P 500 index have already fallen below their February highs. Only about 55% of S&P 500 component stocks are trading above their 200-day moving average, and market breadth indicators have turned downwards. Montgomery warned that history shows that this extreme narrowing of breadth always ends in a sharp downward correction. Even more dangerous is the fact that the spread of high-yield corporate bonds in the U.S. is widening, indicating that the credit market has already anticipated the pressure on corporate cash flows. When arbitrage funds are forced to exit high-flying tech stocks, this fragile balance could collapse instantly. As for the cryptocurrency market, Schiff, who has always been bearish on Bitcoin, once again provided sharp criticism. The price of Bitcoin has fallen by over 28% this year, nearly halving from its record high of $126,080 set in October 2025. Schiff pointed out that this alone proves that Bitcoin does not possess safe-haven qualities. "I believe that when tech stocks fall, Bitcoin will be highly correlated with them when tech stocks rise, it may not rise, but when tech stocks fall, it will fall even harder." He also directed his criticism towards Wall Street institutions' hypocrisy. Citigroup, Standard Chartered Bank, Bernstein, JPMorgan Chase, and Fundstrat have provided Bitcoin price targets ranging from $82,000 to $250,000, but none of them have listed it on their balance sheets. More direct evidence comes from the publicly listed company Strategy (MSTR.US). This company, led by Michael Saylor, the world's largest corporate Bitcoin holder, has recently been forced to sell about $230 million worth of Bitcoin to pay preferred stock dividends. The trading discount of its common stock relative to its Bitcoin assets has widened to nearly 40%, and the implied yield of 13.7% on preferred stock suggests that investors simply do not believe that Bitcoin can sustain enough gains to cover dividends. Precious metals: the only safe haven in the storm In Schiff's estimation, whether a collapse in the bond market forces the Fed to print money to rescue the economy or inflation continues to burn hot, the ultimate beneficiaries will be precious metals. After experiencing a brief dip below $4,000 in June, safe-haven funds are currently reassembling in gold, while silver and other assets are poised for a breakout. Schiff predicts that silver prices will reach $200 per ounce, with $50 becoming a long-term support level; gold prices, on the other hand, could rise to $5,000 and eventually aim for $10,000. He also believes that as investors gradually accept the high prices of precious metals as a long-term norm, the valuations of mining stocks will also be reassessed. "I believe that the precious metal market is preparing for a significant uptrend, while the stock market is getting ready for a significant downturn," Schiff declared unequivocally. Regardless, Schiff's analysis has sent a clear signal to investors: the direction of the U.S. bond market in the coming weeks will be a key litmus test to validate his assessment.