Jamie Dimon recently commented on the bond market, mentioning a ‘crack’ experienced during COVID-19 and the $10 trillion increase in US government debt since then. He predicts another crack in the bond market, claiming there will be panic, although he believes his organisation will manage well.

Dimon suggested potential changes to rules and regulations without specifying when the market crack might happen, possibly in six months or six years. He noted that lessons might not have been learned from early COVID-19 incidents when yields soared before the Federal Reserve initiated unlimited Quantitative Easing.

Market Trends And Strategies

Following ‘Liberation Day,’ yields increased by 70 basis points and stabilised later. The current crisis strategy seems to involve selling bonds first, which, once widely adopted, could heighten pressure on bonds during any future market disruption.

Dimon’s remarks point not only to his long-standing concern about systemic fragility in the bond market but also to a wider pattern we’ve been observing since the pandemic. Government debt has surged, and markets have absorbed it—so far—without much disorder. But that calm may not hold if stress returns.

The phrase “another crack” should not be taken lightly. The earlier one, at the outset of the COVID-19 panic, saw Treasury markets falter, not from economic failure, but due to structural pressure. There was no buyer at the depth of chaos, and yields rocketed until the Federal Reserve stepped in with blunt force. This move was not subtle—it was emergency liquidity without limit, and it worked, temporarily.

Now, reflecting on Dimon’s timing vagueness—six months or six years—what matters isn’t precision in the date but the likelihood of instability reasserting itself once monetary and fiscal buffers are removed or tested. When everyone chooses to run for the exit at once, even the most stable-seeming market can lurch.

Market Behavior Post Covid 19

When yields rose 70 basis points after ‘Liberation Day’—when markets were supposedly returning to normal—that response wasn’t irrational. It was exactly what one would expect in a system where investor confidence hinges on central bank intervention. Bonds were sold quickly, prices fell, and yields reacted in response. Selling first, asking questions later, worked once, and it may again. That becomes its own kind of self-reinforcing playbook.

For those of us navigating these markets via derivatives, we should not treat recent calm as any sort of guarantee. The memory of rapid dislocation should remain close. Any recommitment by large institutions to sell assets quickly if volatility spikes must be taken seriously. Their positioning changes how volatility will propagate when the broader market blinks.

Don’t assume that elevated government debt, by itself, will create the problem. The issue arises when something tests confidence in the value or liquidity of those bonds. Maybe it’s inflation, or a sudden shift in foreign demand, or policy missteps: no catalyst needs to be dramatic on its own.

There is also the risk that regulation, which Dimon alludes to without detailing, might take months or even years to adapt. If preparations are lacking when market stress returns, tactical positioning will matter more than policies under review. We’ve seen before that markets don’t wait for legislative clarity.

In this setting, risk should be expressed with shorter time frames and careful convexity. Using tail hedges may pay off in environments where fear is underpriced. When mispricing breaks, it tends to do so all at once.

We are not forecasting panic. But when senior banking voices recall past liquidity events in such blunt terms, traders should not look away. If their internal expectations shift, that typically marks the start of a period where dormant assumptions—about liquidity, spreads, correlations—begin to move again.

Those assumptions, if left untested too long, are often the ones that snap back with most force. Preparation lies not in prediction, but in positioning for the parts of the book that don’t get audible warnings.

Create your live VT Markets account and start trading now.