Dimon warned that as global government debt continues to rise, some form of a bond crisis will "eventually arrive."

Written by: Dong Jing

Source: Wall Street Journal

At a sensitive moment when global debt risks continue to accumulate, Wall Street's most influential bankers have issued another alarm.

On April 28, according to CNBC and Bloomberg reports, JPMorgan CEO Jamie Dimon warned at an investment meeting hosted by the Norwegian sovereign wealth fund that the rising level of global government debt could trigger a bond market crisis, emphasizing that once the credit cycle turns downward, the impact will be "more severe than people expect." He urged policymakers to take proactive measures rather than waiting for market turbulence to force action. Dimon's statements quickly shook the market.

He pointed out that risks such as geopolitical tensions, oil price fluctuations, and government fiscal deficits are accumulating, "We do not know which combination of events will ultimately trigger the problems." In the private credit sector, he warned that over a thousand institutions are involved in the market, and not all of them will be able to remain unscathed when the cycle turns; some banks may also face difficulties.

Bond Crisis: It's not "if," but "when"

When asked if he is worried about global and U.S. government debt levels, Dimon's response was direct. "Given the current trend, some form of a bond crisis will come, and we will have to deal with it," he said.

"I am not worried about whether we can cope; I just think the mature approach is to handle it proactively rather than waiting to react passively after a crisis breaks out."

The bond crisis scenario described by Dimon typically means suddenly soaring yields and a breakdown in market liquidity—with investors scrambling to sell while buyers retreat, ultimately forcing central banks to step in as the last buyer.

He cited the 2022 UK government bond crisis as a recent example: at that time, UK bond yields surged sharply, and the Bank of England was forced to intervene urgently to stabilize the market.

He emphasized that history has repeatedly shown that multiple current risk factors may interact in unpredictable ways. "Geopolitical issues, oil prices, government deficits—these risk factors are all significant, they may dissipate or they may not, and we cannot predict which combination of events will ultimately trigger the problems."

Private Credit: Size does not constitute systemic risk, but quality is concerning

In the private credit market, Dimon's judgments are more nuanced. He stated that the private credit market, which is about $1.7 to $1.8 trillion in size, is not enough to pose a systemic risk to the U.S. economy—aligning with his statements earlier this month in the annual letter to shareholders.

However, he expressed clear concerns about market structure and credit quality. "There are currently over a thousand institutions involved in the private credit space; some may be very good, but I can assure you that not all of those thousand institutions are," Dimon said.

He pointed out that underwriting standards vary significantly, and with a long-standing absence of credit recession, once the cycle turns, the impact will surpass market expectations. "It may not be catastrophic, but it will be worse than people expect—this could also apply to some banks."

It is worth noting that JPMorgan itself has not shied away from this market. According to a previous article by Wall Street Journal, the bank's asset management division is in talks with institutional investors, planning to raise billions of dollars for a private credit strategy provided by JPMorgan's commercial banking business.

Inflation and Geopolitics: The list of risks keeps growing

Dimon also issued broader warnings about the macro environment. He stated that the Iran war, global remilitarization, infrastructure investment demand, and fiscal deficits all pose sources of inflationary pressure.

"I believe there are many inflationary factors, including the Iran war, global remilitarization, global infrastructure demand, and our deficits."

Despite this, he stated that he is not currently worried about inflation itself, but he previously compared inflation risks to "a skunk at the party"—a potential threat that could spoil the atmosphere at any moment.

In Dimon's view, the real risk today lies in the nonlinear accumulation of multiple pressures: any one factor may not be sufficient to trigger a crisis, but their intertwining and resonance could trigger unexpected market adjustments at some critical point.