Black Monday’s stock-market warning signal came from the bond market, and it’s back, says Wall Street veteran

Bonds are once again flashing a warning signal that's been associated with equity market volatility, according to Larry McDonald, a Wall Street veteran. He's drawing parallels between current bond market conditions and those seen in the summer of 1987, a period that preceded the infamous Black Monday stock market crash. At that time, bonds were offering unusually high returns, similar to those typically associated with equities, which was seen as a red flag.

This matters because bond markets are often considered a more stable and less volatile counterpart to equities. When bonds start delivering equity-like returns, it can indicate that investors are becoming increasingly risk-averse, seeking higher yields in traditionally safer assets. This shift in investor sentiment can be a precursor to broader market volatility, as it suggests that confidence in the equity market may be waning.

To watch next: The bond market's continued performance and its implications for equities. Specifically, investors will be monitoring the yield curve and spreads between different types of bonds, as well as the overall direction of interest rates. Any further increases in bond yields or changes in the shape of the yield curve could signal growing concerns about inflation, economic growth, or financial stability, potentially setting the stage for increased market volatility.

Originally reported by marketwatch.com. BondNews adds analysis for finance & markets readers.