Deadline of the day

Yesterday (Thursday)

That’s when President Trump’s latest two-week end-the-war deadline on Russia expired.

Name’s bond. Government bond.

It’s time to talk bonds again, dear Intriguer.

Why? Because when financial markets sh** their pants then pretend like nothing happened, we have to know what happened. Was it a virus? A scare? Bad shrimp?

So here’s a recap, using Bond film titles for guidance.

• For Your Eyes Only

A super quick bonds recap: governments borrow cash by selling bonds, which are basically promises to repay that cash with interest (aka ‘yield’).

But when broader rates rise, existing bonds don’t look so attractive and their price drops. That’s why bond prices and yields always move in opposite directions.

And this week, investors have been ditching their 30-year bonds, driving yields up:

• US yields tipped back over the feared 5% mark

• UK yields were at their highest since 1998

• French yields hit another 14-year high, and

• Even Japan's famously low yields hit a new top! 

But why are investors selling their bonds? Because trust is in…

• Skyfall

Investors are losing faith that governments are still willing or able to a) balance their budgets, and b) tackle inflation.

Sure, countries that issue their own currency (the US, Japan, the UK etc) can just create the money to pay back bonds — not an option for others (like France, using the euro).

But either way, if markets lose faith in government budgets, investors assume all the inevitable money creation will just fuel inflation and weaken the currency — and no investor wants to get repaid in a weaker currency getting eroded by inflation.

So investors start demanding higher interest (yield) to hold longer-term debt (bonds).

But why are investors losing faith in governments? It partly relates to the…

• Spectre

… of domestic politics, with various messes in Japan (the PM might not survive the year), France (another no-confidence vote on Monday), and the UK (six PMs in 15 years).

And when you’re busy just surviving each day, it doesn’t leave a lot of bandwidth for those tough but necessary budget calls (raising taxes / cutting spending). Even the UK’s Starmer — enjoying a solid majority — is facing real doubts around his autumn budget.

Throw in the US — with Musk’s DOGE cost-cutting falling way short, Trump’s tariff revenue getting ruled illegal, and spending still rising — and bond investors get jittery.  

Still, markets managed to calm down a bit by Wednesday, thanks to…

• The Man with the Golden Gun (aka Fed Chair Jerome Powell)

He didn’t do anything Wednesday, but markets are now 100% certain he will do something at the next Fed interest rates meeting on the 17th. Why?

Wednesday’s worse-than-expected US job numbers vindicated his Jackson Hole hint — the bigger US risk is now around jobs rather than inflation, meaning the Fed will cut rates.

And as you’ll recall from above, lower rates and lower inflation both encourage investors to pile back into bonds, which is what just happened, cooling yields.

And so what was that whole pants incident after all, dear Intriguer? A virus? A scare? Bad shrimp? We’d say it’s looking more and more like a virus (the structural problems above), meaning this week’s cyclical cleanse might not be the long-term cure.

And that leaves us wondering if global bond markets will just (sorry) Die Another Day.

Intrigue’s Take

Lots of economic rules are now under pressure, including a big one: in a crisis, investors traditionally pile into the great safe-haven: the US dollar. Even when that crisis is US-made (2008), investors run to the US. The result has always been US rates and the dollar rising and falling together (while others have to do the opposite to defend their currency).

But there’s a chart doing the rounds showing this golden rule has now snapped, with the US dollar now just behaving like most other currencies (ie, moving in the opposite direction to rates). So something else is now pushing the dollar down:

• The USD has had its worst half-year since the 1970s, while

• Alternatives like the yen and Swiss franc (plus Bitcoin) have soared, and

• Central banks now hold more gold than treasuries for the first time since the 90s.

What’s happening?

There are of course benefits to a weaker dollar (your exports seem cheaper).

But the data shows the US dollar-rates link broke in April, so… what happened in April? Economists like Adam Posen argue the obvious trigger was Liberation Day, and yet the fact the link has stayed broken ever since suggests it’s not just about investors fearing US tariffs, but rather investors fearing broader US unpredictability, whether in spending (The Big Beautiful Bill), central bank independence (pressure on Powell and Cook), or beyond.

Sound even smarter:

• September has historically been a selling month for long-term bonds, as bankers return from the break wanting to zhuzh up (love that word) their portfolios.

Meanwhile, elsewhere…

Extra Intrigue

In other worlds…

• Tech: A Chilean not-for-profit is leading a project to develop a new open-source large language model specifically for Latin America.

• Health: A new study published in Science has linked air pollution to dementia.

• Royalty: A Dubai princess is engaged to Moroccan-American rapper, French Montana.

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Mission of the day

Every country leverages its strengths to lure the great and the powerful through its embassy gates: Finnish diplomats famously use saunas, Tokyo’s missions always put on a fantastic spread, and the Brazilians won’t let you leave until you’ve slurped that caipirinha.

But when most of the world doesn’t technically recognise you as a sovereign nation, you need to dig even deeper to fill that room. And that’s precisely what Taiwan did at its 17-acre de-facto DC embassy estate (Twin Oaks) last night, unleashing the democratic island’s ultimate secret weapon: boba (bubble) tea. Needless to say, we partook.

Most countries have super-strict rules around how (or even if) their diplomats can engage with Taiwan. But thankfully we’re now ex-diplomats, because there’s absolutely no limit to the number of protocols we’d happily breach to get our hands on that sweet sweet boba.

Friday Quiz

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