Wall Street Veteran: Bond Market Flashing Signals Reminiscent of Eve Before 1987 Black Monday
nashnova research
What happened before the 1987 crash?
U.S. stocks hit an all-time high in August 1987. Two months later the Dow plunged nearly 23% in a single day.
On the eve of the crash, the U.S. 10-year Treasury yield reached 9.89%; the U.K. 10-year gilt hit 10.12% — bonds were delivering equity-comparable returns.
This means → once bond returns catch up with equities, capital migrates out of stocks into bonds, and equities lose their "there is no alternative" funding support.
Why does he say the same logic is playing out now?
During COVID, central banks pushed rates to near zero. Companies rushed to issue low-coupon long-dated debt — Apple, for example, sold a bond maturing in 2060 with a coupon of just 2.55%.
Central banks then pivoted to rate hikes. New bonds offered far higher yields, forcing older low-coupon bonds to trade at a discount.
In plain terms = the cheap money borrowed years ago is now "clearance merchandise" on the market — the deeper the discount, the higher the effective return for today's buyer.
How steep are the discounts — and how high are the returns?
McDonald's example: Alphabet issued a 100-year sterling bond in February 2026 at near par. By this summer the price had fallen to roughly 87% of face value, pushing its yield above 7%.
Oracle's long-dated bonds have similarly surged to the 7%-8% yield range.
He invokes the "Rule of 72" — divide 72 by the interest rate to get the years needed to double your money. At 7%-8%, principal doubles in roughly nine years. "That is equity-grade return, and it starts stealing share from equities."
So should investors buy bonds now — or run?
McDonald believes that if bonds sell off one more leg, it will create an "exceptional buying opportunity."
But he also warns that rising energy prices are amplifying recession risk — a separate pressure on equities.
This means → whether the bond-market signal and the macro risk evolve in tandem will be the key variable for this cycle's stock-market trajectory — bonds stealing capital is the slow blade; recession is the fast one.
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