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The bond market has a way of telling you things before the stock market is ready to listen. Larry McDonald, a former Lehman Brothers trader and founder of The Bear Traps Report, says it is talking right now, and the message sounds a lot like the summer of 1987.
Speaking on the David Lin Report podcast on September 24, McDonald laid out a detailed comparison between today’s fixed-income dynamics and the conditions that preceded Black Monday, the October 19, 1987, crash that sent the Dow Jones Industrial Average down nearly 23% in a single session.
What the bond market is actually saying
Corporate bonds from Alphabet and Oracle are currently yielding above 7%, and Oracle’s long-term debt is in the 7% to 8% range, a level that could theoretically double an investor’s capital in roughly nine years. Alphabet issued a 100-year bond in February 2026, and that instrument has already fallen to around 87 cents on the dollar, pushing its yield above 7% as a result.
McDonald’s phrase for it is blunt: bonds are beginning to “steal market share” from equities. Capital that might otherwise flow into stocks starts gravitating toward fixed income when the yield gap narrows enough to make the trade compelling, especially for institutional investors managing large pools of money with risk mandates.
The 1987 parallel, explained
The historical comparison McDonald draws is specific, not vague. In the summer of 1987, the Dow reached an all-time high in August. Two months later, the market collapsed.
What happened in between was a bond market that turned hostile. U.S. 10-year Treasury yields climbed to 9.89% that summer, while U.K. 10-year gilts hit 10.12%. At those levels, fixed income wasn’t just competitive with stocks, it was actively crowding them out.
Energy prices add another layer of risk
McDonald flagged a second variable that complicates the picture further: rising energy prices.
Energy costs feed directly into inflation, and inflation is the enemy of bond prices. McDonald sees elevated energy prices as a meaningful amplifier of recession risk. McDonald’s view is that if bond prices continue to decline from here, the resulting yield spike would create what he describes as “incredible buying opportunities” in fixed income.
What this means for investors watching equities
The practical implication of McDonald’s analysis is a straightforward portfolio question: if bonds are offering 7% to 8% yields from blue-chip issuers, what exactly is the equity risk premium compensating you for?
McDonald’s warning is not that the sky is falling tomorrow. It is that the market is in a zone where the historical setup for a significant repricing has appeared before, and ignoring it because the Dow is still near its highs is exactly the kind of complacency that defined August 1987.
Given that Alphabet’s 100-year bond is already trading at a meaningful discount to par and Oracle’s debt is pushing 8% yields, the bond market itself seems to be casting a vote.
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