This week, the global financial markets have been quite lively—stocks are up, but the bond market is starting to get restless. Rate cut expectations are heating up, leverage is being pushed to new extremes, and emerging market debt costs have hit another record high. On the surface, things seem calm, but there are strong undercurrents beneath, with several forces intertwined, leaving investors feeling uneasy.

The most obvious change? Risk appetite has returned. Global stock markets are collectively on the rise, and expectations for a Fed rate cut are soaring, as if the market is already celebrating the return of the "era of easing." But interestingly, the Bank of Japan made a sudden turn—unusually sending out a hawkish signal, hinting that a rate hike may not be far off. Japan’s 10-year government bond yield immediately hit a new high, putting pressure on global bond markets. Monetary policy directions are starting to diverge, and funds are accelerating their shift away from low-yield bonds into the stock market. Capital flows and valuation frameworks may be in for a major reshuffle.

What’s even more concerning are leverage and credit risks. Several hedge funds have reportedly been using near record-high leverage to participate in debt-backed strategy trades. What does high leverage mean? If liquidity tightens, the risk of blow-ups multiplies. Especially for AI-related assets, issues of overvaluation and excessive reliance on debt expansion for financing are being repeatedly mentioned, and the bubble warning sirens are getting louder.

In the coming period, the direction of macro policy and changes in the credit environment will become the core driving forces behind the global repricing of capital. While the market rebound is certainly encouraging, structural imbalances are building up—and that’s where the real focus should be.