The combination of a falling DXY, rising 10Y yields, and violent S&P volatility in a bear market regime mirrors the exact intermarket dynamics from September 10–24, 2008 the period just before global credit markets froze. Back then, the dollar broke down sharply even as Treasury yields rose, defying traditional risk-off behavior. This divergence signaled a deeper liquidity mismatch one not based on fundamentals, but on collateral strain and global repo stress. Fast-forward to 2025: we’re witnessing the same divergence now, but under vastly more fragile geopolitical and monetary conditions.
Unlike 2008, today’s market structure is far more leveraged and globally entangled. U.S. Treasuries, the spine of global finance, are being used in basis trades at 15x leverage, while foreign banks now hold 42% of all Fed reserves much of it parked in arbitraged cash instruments while also borrowing nearly $1 trillion in domestic markets. Japanese and European institutions are exposed to rising U.S. yields and FX hedging losses, especially with the Swiss franc and yen gaining strength as silent protests against U.S. monetary instability. The SOFR swap spread inversion, combined with collapsing cross-currency basis trades, shows that beneath the surface, collateral scarcity and distrust are spreading fast just like before the GFC, only now with more pipes, fewer valves, and higher pressure.
Back then, the U.S. still held moral authority to coordinate a bailout. Now, it’s using its financial weapons tariffs, sanctions, dollar settlement privileges as tools of war. This makes U.S. instability not just an internal problem, but a contagious export. The collapsing DXY and spiking yields suggest that the world is beginning to step away from U.S. sovereign risk not in a full break yet, but in a quiet, systemic shift. When reserve currencies get dumped while their yields rise, it’s a signal not of capital fleeing risk, but of risk being defined by the reserve itself.
In short, this is a slow-motion replay of September 2008 but with less trust, more leverage, and no buyer of last resort with credibility left. The analog is valid, but this time, the floor beneath it is thinner. The warning signs are everywhere: the CHF breakout, the synchronized DXY/Yield divergence, the silence in swap spreads. In 2008, that silence ended with a crash.
...now actually we may have short term 'noise' created by Trump's twitter feeds while beneath the surface lies something more insidious moves that reflect a medium to longer term change in US fundamental outlook.
...I ask you to revisit my post in Its Over that told you the story of how political changes have had an adverse impact on UK's stock market (following Brexit) and Hang Seng (following democracy crackdown)....and that we are now entering a new phase of America's own Brexit moment.
