Henry Paulson, the former US Treasury Secretary who steered the country out of the 2008 financial crisis, has seen the market up close. And when he says that the bond market could see a “vicious crash,” Wall Street and retail investors need to pay attention. He specifically used the word “vicious,” indicating that the downturn could be prolonged.

The US bond market is the bedrock of the global financial investment system for steady gains. It is also called the safest investment on earth, as it is backed by the trust in the US government. The 10-year Treasury yield is used as a global financial benchmark. This inadvertently influences mortgages, borrowing costs, corporate loans, and sovereign debt.

Also Read: Senate Blocks Bernie Sanders Bid to Halt $500 Million Israel Arms Deal

Bond Market’s Crash Will Be the Hardest, Says Former Treasury Secretary

If the Treasury market faces pressure, the ripple effect will hit the broader markets, including stocks and commodities. Not to mention, the real estate sector will turn shaky, and the loop of financial discomfort extends. When the US government needs money for operations, from defense spending to social programs, it doesn’t depend on taxes alone. This gap, called the budget deficit, is financed by issuing Treasury securities, which are sold in the bond market.

While the National debt races towards $39 trillion, the US bond market is carrying more weight than it can handle. Paulson warned that the weight is only getting heavier until the Treasury market snaps. “We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it’s ready to go when we hit the wall,” Paulson said in a recent interview on Bloomberg Television’s Wall Street Week.

When the crash occurs and the US government does not find buyers to fund its debt, the pressure falls on the Federal Reserve to become a purchaser. Paulson stressed that the situation will become a “dangerous thing” as prices and interest rates will rise rapidly.