The strong rally in US junk bonds this year came to an abrupt halt last Friday, recording the largest single-day price decline in six months, primarily due to Trump's plan to impose an additional 100% tariff on China, which severely damaged global financial market risk appetite. Bond market risk premium indicators soared to 304 basis points, approaching four-month highs. The overall yield in the US junk bond market rose to 6.99%, the highest level in over two months.

Notably, beyond the overall junk bond prices posting their largest decline in six months, the US credit market is also experiencing a series of disturbing bond flash crash events. Some cautious investors have even begun praying: "These are not the prelude to a new round of subprime crisis."

Following China's announcement of broader new restrictions on rare earth and other critical mineral export vehicles and related technologies, and US President Donald Trump's threat to impose massive tariffs on imports from China, the junk bond sell-off 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 movements, last week's overall price decline reached 0.73%, also the largest since April. As concerns about trade and tariffs between China and the US were fully reignited, the bond market decline spread across all bond rating tiers.

Junk bond yields rose 15 basis points on Friday alone and 31 basis points for the entire week, marking the largest single-day and weekly increases in six months. "CCC-rated" junk bond yields broke above 10% to reach 10.14%, the highest level in five weeks, while spread measures expanded to 632 basis points, the highest in six weeks. Friday's spread surged 32 basis points, creating the largest single-day increase since April.

CCC-rated junk bonds fell 0.6% on Friday, their worst single-day performance in six months. The overall weekly price of CCC-rated junk bonds declined 1.05%, also creating the largest weekly price drop in six months.

Generally speaking, junk-rated bonds, also known as high-yield bonds, refer to high-yield bonds with credit ratings far below "investment grade." According to S&P and Fitch rating systems, bonds with credit ratings below BBB- are considered junk-rated bonds; according to Moody's rating system, bonds below Baa3 are considered junk bonds. These high-yield bonds are typically issued by companies with poor financial conditions or emerging types of unprofitable enterprises, with higher default risks, therefore requiring higher bond yields to attract investors and compensate for the additional higher risks they bear.

Multiple Negative Signals Flash Consecutively, Market Prays: Please Don't Let This Be the Return of "2007-Style Subprime Crisis"

Beyond the overall US junk bond prices posting their largest decline in six months and spreads widening, the US credit market is experiencing a series of disturbing bond 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 fallen from face value to mere cents within days or weeks, with declines exceeding 80%.

Junk bonds are not equivalent to subprime loans of the past, but both carry high default risks. Jason Mudrick, a senior trader at distressed debt hedge fund Mudrick Capital Management, stated: "Recent bond market crash events may be the canary in the coal mine." Jason Mudrick believes, "Years of accumulated excessive behavior in markets stemming from near-zero benchmark rates and steady growth have stimulated excessive corporate borrowing and encouraged aggressive risk-taking by lenders. We're now beginning to see this completely overturn under extreme circumstances."

Matt King, founder of Satori Insights and global market strategist, stated: "We can say that there's a lot of credit that should have gone bankrupt but has been kept afloat through a combination of relaxed terms and ample ongoing liquidity. The question is just how long it takes for the market to discover this."

Some senior market analysts suggest that the market level still represents "repricing" rather than complete disorder - meaning the current US junk bond market crash is more like "tail risks being called out one by one at the most vulnerable credit points" rather than "the eve of a systematic subprime crisis replay."

In other words, according to these senior analysts, while high-yield debt risk premiums have significantly widened recently and yields have risen (such as OAS/yields surging, CCC again >10%), they still cannot be compared to historical peaks during crisis periods; this is more like a segment of "risk appetite hitting the brakes hard" rather than a systematic collapse of the credit market.

However, if tariff escalation drags down US economic growth, refinancing windows tighten, and non-bank financial institutions experience comprehensive negative feedback from "redemption-deleveraging," it could evolve from "scattered explosions" to a "broader credit storm," requiring continuous calibration based on data tracking.

For example, key focus should be on whether high-yield OAS continues to break through 500-600bp, CCC distress ratios, primary market issuance/refinancing success rates, HY/loan default rate trajectories, private credit fund redemptions and "gates," bank credit lines and backfilling to private credit, and CRE delinquency rates. Only when these indicators deteriorate across the board would systematic financial risk assessment need to be upgraded.