Did the Global Economy Just Have an Acute Heart Attack? Why Bond Markets, Japan, and Liquidity May Define the Rest of 2025
Emergency Wealth Matters 3.0 Briefing| May 20, 2025
Happy Tuesday. This is the only economic vitals chart anyone should be talking about today!
Long before I became an insatiably curious investor and businessman, I spent my waking days optimizing the strength and performance of my physical body for my athletic endeavors. In both undergrad and graduate school, I studied to get my master’s degree in exercise physiology and nutrition, and I saw every system of the body as an elegant, interdependent machine. It was pragmatic as it was all about understanding how to optimize the performance of my biological portfolio.
25 years ago, when my athletic career ended after college, I shifted from an athletic obsession to an entrepreneurial/investor one. I used this baseline of biological knowledge to build mental frameworks that could help me drive performance out of a financial portfolio.
Today, I want to frame the global economic game through that same lens. Because when you truly understand how the financial system works—what makes it thrive, break down, and recover—you can better position your portfolio to avoid illness and capture lasting vitality.
Just as a strong body can't survive if the heart stops, a muscular economy (emboldened by the promise of more historic trade deals, no matter how robust) can still collapse if its financial heart fails.
The Bond Market: The Heartbeat of Finance
If the global economy were a living body, the bond market would be its heart, pumping lifeblood (liquidity) to every organ and tissue. Just as the body cannot function without a healthy, beating heart, the world’s financial system cannot survive without robust, liquid bond markets. When the heart falters, every other system (stocks, real estate, businesses, even governments) suffers or fails.
The U.S. Treasury market alone trades nearly $1 trillion per day, making it the most foundational marketplace in the global economy. Governments, corporations, and institutions use the bond market to borrow capital, and investors use it to seek yield and safety. This market sets the cost of money for nearly every transaction in the economy.
When bond yields rise, borrowing gets more expensive. When liquidity dries up, the financial heart stops beating.
Japan: The Heart’s Weakest Chamber Just Flatlined
The three most relevant bond markets (chambers) to the health of the global economy are the
U.S. ($26T+ in government bonds/$51T in total)
China ($19.8T+ which is 16% of global debt)
Japan ($12.4T+ with BOJ owning 50% of the government bonds)
Until recently, Japan was seen as a stable component of the global financial system. But that perception is changing fast. Japan’s 40-year bond yield recently skyrocketed to 3.588% in the last few days, an unthinkable figure given its decades of near-zero rates.
Said another way. The demand for it hit such a low in the last week that they have to offer 3.5x the yield to try and get buyers to purchase their paper.
Japan is also the largest foreign holder of U.S. Treasuries. With its bond market in disarray and investor demand weakening, the Bank of Japan may be forced to sell U.S. Treasuries to restore domestic liquidity. That would flood global markets with supply, driving yields even higher.
Since the recent Moody downgrade of the U.S. Credit rating and other market factors have weakened the auction demand for the U.S. Treasuries in parallel, the Federal Reserve quietly bought out the majority of last week’s auction that went unsold.
Result? The U.S. 10Y Treasury yields went back over 4.5% again, despite a tremendous week of deals announced by Trump off his Middle East tour (new muscle), which is the signal of where the immediate market is heading despite the outward ‘muscles’ on financial news media with S&P and Dow Futures.
What Happens If Japan Dumps Treasuries?
A forced Treasury selloff by Japan would ripple across the global financial system. Here's how the contagion chain could unfold:
Japan Dumps U.S. Treasuries
U.S. Treasury Yields Spike
Bank Capital Gets Crushed (due to mark-to-market losses on bond holdings)
Bailouts and Emergency Liquidity are used to stabilize the system and typically follow (i.e., the paddles to kickstart the heart again and keep the patient alive).
Markets Sell Off Sharply, creating a potential "buy-the-dip" moment for prepared investors, as everyone overreacts to the noise in the media, that the athlete will return to the field stronger once the heart has recovered, based on the other forces and fundamentals.
This sequence isn't hypothetical. We've seen variations of this play out in 2008, 2020, and to some degree in the 2023 regional bank mini-crisis. The difference this time? It's sovereign.
Fiscal Policy, Yields, and the Arteries of Finance
Governments influence the bond market through their spending habits. The more they borrow, the more bonds hit the market. If investors get skittish, yields rise. If yields rise too fast, the cost of capital explodes.
Bond yields are the pulse rate of the economy. They rise when inflation, geopolitical instability, or poor fiscal discipline spook investors. But sometimes they rise simply because there’s too much supply and not enough demand.
Japan’s potential Treasury dump could create a super-supply event that overwhelms demand and drives yields sky-high.
Central Banks: The Heart’s Pacemakers
The Federal Reserve and other central banks act like pacemakers, regulating the economic heartbeat through interest rates and bond purchases. But if yields spike too fast, even the Fed's tools may struggle to restore rhythm.
This is particularly dangerous when markets doubt central bank credibility or when interventions are too slow. In that case, panic can overtake policy.
Historical Echoes: What Happened When the Heart Stopped in the Past?
We have precedent:
1930s: Deflation and a collapse in credit froze the system.
1970s: Stagflation and yield spikes crushed growth.
2008: Subprime contagion caused massive liquidity failures.
2020: COVID froze credit; central banks intervened with record speed.
Each time, the heart faltered. Each time, extraordinary measures were needed to revive it.
Current Diagnosis: Global Stress Is Building
U.S. Treasuries: Yields are rising due to deficits and political uncertainty.
Japan: Yields are surging as auctions fail and bond buyers flee.
Europe is facing similar pressures with inflation and energy instability.
Emerging Markets: Vulnerable to capital flight and rising external debt burdens.
One chamber failing puts strain on the others. If Japan exits U.S. debt in size, the feedback loop could intensify across all developed markets.
Investor Playbook: How to Survive & Thrive
A. During Acute Stress:
Stay liquid. Keep cash or very short-term bonds ready to deploy.
Buy quality. Look for high-grade bonds when yields spike.
Hedge. Use gold, Bitcoin, or inverse ETFs as portfolio shock absorbers.
B. Long-Term Strategies:
Gradually lock in yields while they’re elevated.
Balance risk. Blend credit exposure and bond duration.
Global diversification. Seek resilient markets and currencies.
Great fortunes are made in moments of panic—not when everything looks safe.
Conclusion: This Is a Cardiac Moment
This isn’t just a market wobble. It’s a cardiac moment for global finance.
If you monitor the pulse, watch the signs, and act with discipline, you can not only survive it, you can capitalize in front of the inevitable recovery. But ignore the bond market, and you risk being blindsided by a liquidity crisis that reshapes everything and takes your portfolio off of the field.
Watch the yields. Track Japan. And prepare for volatility as both a threat and an opportunity.
Yours in health and wealth,
~Chris J Snook
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