It’s not about calling the top tick of the bull run, it’s about preparing for the turn in the cycle.
Financial markets don’t collapse because of headlines — they collapse because the flow of money itself begins to dry up. That flow, known as liquidity, is the bloodstream of global finance. When it weakens, stress doesn’t start in the stock market ticker tape. It begins deep inside the plumbing — repo markets, collateral chains, and funding spreads. Those signals are flashing red.
The liquidity upswing that began in late 2022 has carried risk assets to fresh highs, powering a rally that many investors have taken for granted. But cycles, like tides, turn. Liquidity has always run in about five- to six-year waves. And this current swell looks like it’s cresting. The next ebb could test the resilience of a system already stretched by historic levels of debt.
Modern finance is built on a paradox: debt needs liquidity, and liquidity is often created on the back of debt. About 80% of global lending is collateral backed — secured by real estate, government bonds, and so on.
But if those supposedly stable assets become volatile, the entire structure wobbles. Rising bond volatility, measured by the Merrill Lynch Option Volatility Estimate (MOVE) — the “VIX of bonds” — forces lenders to demand steeper haircuts. That shrinks credit availability, tightens conditions, and sets off chain reactions that can turn into crises.
We’ve been here before. Every major financial shock of the last half-century — from the savings and loan crisis to the global financial crisis — has coincided with extreme debt-to-liquidity ratios. Too much debt chasing too little liquidity is the dry tinder that ignites when stress flares in repo or funding markets.
The problem isn’t just today’s liquidity squeeze. It’s tomorrow’s refinancing wall. During the Covid-19 era, governments and corporations gorged on ultracheap debt, locking in low rates and pushing maturities further into the future. That future is now approaching. In 2026-29, $35-trillion to $40-trillion in debt will need to be rolled over annually.
This isn’t fresh capital for innovation or growth — it’s yesterday’s borrowing coming due at today’s far higher rates. Layer onto this a Federal Reserve actively slowing liquidity injections and the set-up looks eerily similar to early 2022, when equities cracked before stabilising again.
