Significant Steps for Crisis Dynamics

Some of the indicators referenced in this week's CBB can be visualized on the Charts page. 

Nvidia surged 3.9% this week, trading early Friday at record highs. Adding 0.7%, the Nasdaq100 closed the week at an all-time high (up 22% y-t-d). While below June’s record high, the Semiconductor Index’s 3.7% weekly rise pushed 2026 gains to 85.5%. The MAG7 index traded only slightly below the September 21st all-time high in early Friday trading. Surely few appreciate ramifications for a problematic global financial crisis that took hold this week.

September 28 – Bloomberg (Amy Thomson): “Nvidia Corp., the chip developer at the heart of the artificial intelligence boom, increased the size of its share buyback plan by $150 billion, increasing the total remaining amount authorized to $235 billion. Nvidia will complete the buyback through fiscal 2028, the… company said… ‘Nvidia’s growth is being driven by a once-in-a-generation platform shift to AI and accelerated computing,’ Huang said... ‘This authorization reflects our confidence in the long-term opportunity ahead.’”

I would suggest managing against overconfidence, starting by forgoing buybacks to fortify Nvidia’s balance sheet for trouble on the horizon.

To be sure, trader (especially levered ones) prayers were answered with a timely U.S. jobs report much below forecast. At the cusp of disorderly escalation, de-risking/deleveraging dynamics recoiled (somewhat).

It was one of those “holy crap” moments: About 30 minutes before the U.S. payrolls data release, French 10-year yields surged to 4.99% - up seven bps on the session to the highest yield since July 2002. While not itself earthshattering, German bund yields were simultaneously down 10 bps to 3.41%. This equated to a quick 17 bps widening in the key France/Germany 10-year yield spread to 158 bps - the widest level since peak 2011 European debt crisis instability. This spread started September at 85 bps, after ending 2025 at 71 bps.

October 2 – Bloomberg (Georgia Hall and Alice Atkins): “Hedge funds caught on the wrong side of this week’s slump in French bonds were forced to unwind bets rapidly, fueling wild moves that European markets struggled to absorb. Taula Capital Management UK LLP, Balyasny Asset Management LP and other firms had piled into carry trades to profit from the difference between interest-rate swaps and French yields… Those positions had been highly lucrative until recently… Concern about France’s budget deficit and rising debt burden are not new, but the buildup of fast money and the increased concentration of risk can amplify swings when markets are stressed. ‘We have a very big community now in France of hedge funds in a way that does not help because that creates more pressure,’ said Marion Le Morhedec, CIO for fixed income at Fidelity International. ‘If you look at the flow, hedge fund activity accounts for probably 50% of what’s happening on the spread at the moment. If you look at Eurex data, it shows you how hectic those players have been over the past few sessions and that puts pressure on governments,’ she added.”

Despite chronic political dysfunction and outstanding debt having exploded to 119% of GDP, higher yielding French debt was considered an alluring (huge, liquid sovereign debt market) target for levered “carry trade” speculation (i.e. short German bunds/Swiss bonds to finance levered holdings in higher-yielding French debt). A major one indeed, but only a single example of the type of manic excess that evolved to permeate global leveraged finance.

Important in the context of a “global crisis,” instability was anything but contained within the French “oats” market. Disorderly Friday trading saw Italian 10-year yields jump to a three-year high of 4.71%, with the spread to German bunds blowing out to 131 bps – up 40 bps from last Friday’s 91 bps close, to the widest level in two years. Greek spreads widened to 117 bps, up from last Friday’s 80 bps close. Panicky.

Policymakers, as they habitually do, will of course respond to this deleveraging episode. How is not obvious. Planning her future beyond the ECB, don’t count on a “bumble bee” revisited speech from France’s own Christine Lagarde. Besides, Mario Draghi’s 2012 “do whatever it takes… and believe me, it will be enough” has run roughshod throughout global finance for the past 14 years.

Since the 2012 European debt crisis, French debt-to-GDP has skyrocketed from 85% to almost 120%. In jeopardy in 2012, the euro is fortunate to have degenerate competitors. With Greece and Italy at the epicenter, previous crisis dynamics were fueled by a crisis of confidence at the euro’s “periphery.” A relative stable “core” coupled with egregious monetary inflation resuscitated Credit Bubble dynamics.

With an unfolding crisis of confidence in French debt, intensifying euroland instability will not be easily managed. Risks are high of already elevated inflation becoming only more problematic. Meanwhile, the bloated ECB balance sheet is sitting on massive and growing losses.

It’s certainly worth noting that the euro declined 1.2% this week (down 4.18% y-t-d). And as bond spreads were blowing out Friday in pre-jobs report trading, the euro declined to a 16-month low of 1.122.

When pondering the “big one,” I’ve long feared that a crisis of confidence in the euro currency could be an important facet of a highly destabilizing global financial crisis. Much depends on the sequencing of speculative deleveraging and faltering Bubbles globally.

Troubling pre-jobs report trading dynamics were not confined to Europe. Some key EM currencies (i.e. Mexican peso, Chilean peso, South African rand) were simultaneously under pressure, only to reverse on weak payrolls. Fragile EM bonds were similarly under pressure, with notably unimpressive post-data rallies. Deleveraging Contagion.

The unwind of European and EM “carry trades” and Treasury “basis trades” now feeds on one another. Deleveraging has commenced liquidity destruction across global debt markets. Moreover, euro weakness bolsters the U.S. dollar at the expense of faltering EM currencies and debt markets (“carry trades”).

Notable EM currency losses this week include the Chilean peso (2.84%), Mexican peso (2.65%), the Romanian leu (2.36%), South African rand (2.08%), Hungarian forint (2.05%), the Czech koruna (1.45%), and Polish zloty (1.43%). Painful three-week drops include the Mexican peso (6.59%), Colombian peso (5.54%), Chilean peso (4.82%), Romanian leu (4.45%), Polish zloty (4.26%), and Hungarian forint (4.26%).

The iShares Emerging Market bond ETF declined another 1.73% this week, with an eight-session loss of 3.33% (largest since the start of the war).

Indicative of deleveraging, dollar-denominated EM bonds were again in the crosshairs this week. Colombian ($) 10-year yields surged 36 bps to a 15-month high of 7.85% - with yields up 70 bps in three weeks. Up 17 bps this week (7.12%), Mexican ($) yields broke above 7% for the first time in at least 16 years. Brazil’s ($) yields rose 15 bps to 6.73%, with yields up 16 bps in Panama (6.53%), 16 bps in Peru (6.20%), and 14 bps in Chile (5.99%). Philippine ($) yields surged 22 bps to 6.25%, while Indonesian ($) yields jumped 19 bps to 6.23% - both trading this week to highs back to 2010 (at least).

Local currency yields surged 37 bps in Colombia (13.18%) and 19 bps in Brazil (14.06%). EM CDS jumped 16 bps this week to the high (167bps) since early April – with a notable two-week rise of 27 bps.

Over the years, I’ve shared key Bubble analysis: Bubbles fueled by high-risk debt, while often spectacular, typically do not pose extreme systemic danger. Risk aversion will take hold (“no more junk!”) before years of excess cultivate deep structural damage. It is Bubbles inflated by expanding “money” – and money-like debt instruments more specifically – that should be most feared and safeguarded against. Insatiable demand for perceived safe and liquid debt ensures the potential for devastatingly protracted structural maladjustment.

This analysis needs to be further developed to better illuminate today’s perilous Bubble backdrop. The global government finance Bubble has been chiefly fueled by “money” – historic inflations of sovereign debt and central bank Credit. Importantly, leveraged speculation has been instrumental in perpetuating the perception of safety in the face of reckless over-issuance.

On the one hand, the leveraged speculating community’s accumulation of Trillions of Treasuries, agency securities, and global government debt sustained artificially low yields. “Deficits don’t matter.” Central banks will ensure liquid and orderly government bond markets.

On the other hand, the global proliferation of “terminal phase” global “basis” and “carry trades” fomented historic liquidity abundance, along with the perception of ongoing limitless marketplace liquidity. Never has the world experienced such monumental market distortions. And especially in the U.S., massive deficit spending inflated incomes, corporate earnings, stock prices, and perceived wealth.

It is in this extraordinary environment that the historic (late super-cycle crazy) AI arms race and debt Bubble were unleashed. Importantly, the market for years deferred the “no more risky junk!” revolt. Instead, it became pretend time, with markets conceiving high quality, even as the underlying AI debt expansion ramped up to hundreds of billions of increasingly risky debt. Systemic risk expanded exponentially.

Well, market protests have now begun in earnest. It might not yet be “no more AI-related debt!” – but it increasingly requires an active imagination to envisage the smooth financing of Trillions of AI spending required over the next few years.

Worse yet, the revulsion to AI Credit unfolds concurrently with a mounting crisis of confidence in government debt - disorientation associated with a double-shot of unforeseen risk recognition and moneyness deterioration that will make the unfolding crisis uniquely challenging to contain. Belatedly, debt from major profligate borrowers – including France, the UK, US, Italy, Greece, Japan, and others - confronts the revelation of the fallacy of moneyness.

In particular, the unwind of levered holdings now exposes the risk of spiking yields (sinking prices), illiquidity, and disorderly markets. And this harsh new reality dramatically alters the risk versus reward calculus for high leverage, setting in motion a problematic “doom loop” of deleveraging and liquidity challenged global markets.

Throughout history, finance has proven remarkably proficient at conveying the notion of a “free lunch.” And this perception of costless meals can persist for years - on rare occasions even decades. Food addictions develop gradually, then the humongous (overdue) bills show up suddenly.

Returning to the markets, stress had been building throughout the week. Right out of the blocks, high yield CDS prices surged 22 bps Monday – the largest daily gain since March 27th. Oracle (’36) yields jumped 15 bps Monday to a record 7.49% - pushing to four-session rise to 47 bps. At Friday’s intraday highs, CoreWeave (’32) yields had surged 62 bps on the week to 12.60% (closed the session at 12.29%). Meta (’36) yields rose another 10 bps this week to a record 6.23% (4-session jump 36bps).

This week’s 28 bps surge in high yield CDS prices was the largest since March – trading to highs since April. High yield spreads widened another 12 bps to 3.06 percentage points (six-month high of 3.18 on Thursday), with the 39 bps two-week widening the largest since “liberation day” instability. Investment-grade CDS increased two, with a 10 bps two-week gain to the high (60.3) since April 4th.

Leveraged loan prices reversed lower, falling 22 cents to a two-month low of 95.27.

October 1 – Bloomberg (Brian Smith, Caleb Mutua and Gowri Gurumurthy): “Just hours after Paramount Skydance Corp. issued $52 billion of debt to fund the biggest Hollywood buyout ever, investors were nursing more than $100 million of losses, triggering a flurry of angry calls from money managers to Wall Street banks that underwrote the debt. The company’s junk bonds were among the hardest hit in initial trading, with the eight-year US dollar notes changing hands at about 96 cents on the dollar on Thursday after selling for 100 cents on Wednesday. The loans and high-grade bonds broadly weakened as well, and the cost of betting against the company’s credit surged to a 17-year high.”

The debt found (willing?) buyers, but it was not cheap. The marketplace is not oblivious to risks associated with much higher-than-expected debt servicing costs. Paramount CDS surged 160 bps in 10 sessions to a record 430 bps. This monster deal certainly embodies a most profligate of eras. It also foreshadows trouble brewing for levered finance more generally.

Speaking of profligacy and levered finance, 10-year Treasury yields jumped another 11 bps this week to 5.27% - the high back to June 2007 (within 2bps of highs back to 2002). Thirty-year yields rose 13 bps to 5.62% - the high since June 2002.

Worth noting that two-year Treasury yields dipped three bps this week, with yields dropping five bps in Tuesday trading. Interestingly, market probability for an October rate hike dropped to 47% on Tuesday (from Monday’s 70%), before ending the week down at 23%. Some dovish Fed comments (Williams, Jefferson, Bowman) didn’t hurt. But mostly, the rates market responded to heightened odds of market instability grounding the FOMC’s hawkish contingent.

Meanwhile, deleveraging drives long duration yields higher. Benchmark MBS yields surged 15 bps to 6.43%, with a 38 bps spike over the past eight sessions. Curiously, 10-year Treasury yields dropped to 5.15% on weak payroll data, only to reverse higher to close the session 12 bps off the lows. The forces of deleveraging have turned powerful. Global crisis dynamics took a significant step this week.

For Posterity: AI Debt Revulsion Watch

September 30 – Reuters (Gertrude Chavez-Dreyfuss): “The artificial intelligence boom has arrived in the riskiest corners of US credit markets, where leery lenders are demanding more compensation to fund borrowers whose future earnings remain largely unproven. AI-related issuance by low-rated firms has totaled $88 billion this year, according to Goldman Sachs, with most… from US issuers. In the first 11 months of 2025, AI-related issuance in leveraged finance — mostly via junk bonds and loans — was just $20 billion, analysts said… Now investors are taking a harder look at these less-established borrowers — questioning their revenue projections, the value of their collateral and how much debt they can realistically support. This comes at a time when higher-rated AI issuers have been on a borrowing spree and a selloff in Treasury markets is pushing yields up across the board. ‘High yield people like to know how much cash flow is coming, when that cash flow is coming, and what is the probability that the cash flow doesn’t come,’ said Larry Holzenthaler, senior portfolio manager… at Catalyst Funds.”

October 2 – Axios (Jim VandeHei and Mike Allen): “No industry has ever documented its own foreseeable risks as loudly as AI. Imagine a plaintiff’s lawyer reading the public warnings of Sam Altman and Dario Amodei: They told the world it was dangerous. They told the world it was moving too fast. Then they unleashed it and sold it to your kid. No industry has ever taken so much copyrighted work and left behind so much proof. Imagine a plaintiff's lawyer reading OpenAI’s own files to a jury: They trained on a pirated library. They renamed it to something blander. Then they deleted it when the headlines got hot. AI’s origins, use and future will be picked apart in countless epic court fights, with a historic paper and public statement trail to tap. Every significant invention — be it social media, automobiles, electricity or capitalism itself — gets disrupted and eventually shaped by the courts. AI, with its tentacles into every part of industry and life, will experience this at scale.”

September 29 – Axios (Avery Lotz): “A public interest law group hit OpenAI with a lawsuit… over its breach of tech company Hugging Face, seeking court-ordered restrictions to prevent future hacks. The rogue hacking incident — and reports of tens of thousands of other possible examples of problematic agentic behavior — demonstrated the urgent risk of AI agents escaping their testing environments, bypassing guardrails and outpacing their creators. The case tests an increasingly urgent question as AI agents gain power: Who bears legal responsibility when an agent blows past its guardrails and causes real-world harm?”

September 29 – Reuters (Echo Wang and Jody Godoy): “Anthropic could face legal claims from customers and users over the actions of rogue artificial intelligence agents, though the legal framework is uncertain, the company said in the prospectus for its stock market debut... While it gears up for what could be the largest initial public offering ever, Anthropic faces the possibility of vast unknown legal risk if its agentic AI technology -- designed to maintain deep access to customers' systems and run autonomously for days at a time -- goes rogue. ‘These autonomous capabilities could increase the potential for harm, as errors, misalignment, or security exploits may result in real-world consequences,’ the company said in the documents, citing the possibility of irreversible actions such as data deletion or financial transactions.”

For the Week

The S&P500 slipped 0.3% (up 12.8% y-t-d), and the Dow declined 1.3% (up 6.5%). The Utilities recovered 0.8% (down 4.9%). The Banks slumped 2.8% (up 4.0%), and the Broker/Dealers dipped 0.8% (up 14.6%). The Transports rallied 2.2% (up 15.3%). The S&P 400 Midcaps added 0.5% (up 11.0%), while the small cap Russell 2000 slipped 0.2% (up 14.1%). The Nasdaq100 added 0.7% (up 22.0%). The Semiconductors jumped 3.7% (up 85.5%). The Biotechs fell 2.3% (up 29.7%). With bullion dropping $144, the HUI gold index sank 6.3% (up 5.0%).

Three-month Treasury bill rates ended the week at 3.9975%. Two-year government yields dipped three bps to 4.82% (up 135bps y-t-d). Five-year T-note yields rose seven bps to 5.05% (up 133bps). Ten-year Treasury yields jumped 11 bps to 5.27% (up 110bps). Long bond yields rose 13 bps to 5.62% (up 78bps). Benchmark Fannie Mae MBS yields surged 15 bps to 6.42% (up 138bps).

Italian 10-year yields jumped 10 bps to 4.61% (up 106bps y-t-d). Greek 10-year yields rose nine bps to 4.47% (up 103bps). Spain's 10-year yields added a basis point to 4.09% (up 80bps). German bund yields dropped 14 bps to 3.66% (up 61bps). French yields surged 18 bps to 4.87% (up 131bps). The French to German 10-year bond spread widened an extraordinary 32 bps to 141 bps. U.K. 10-year gilt yields were unchanged at 5.37% (up 89bps). U.K.’s FTSE equities index dropped 2.2% (up 5.2% y-t-d).

Japan’s Nikkei 225 Equities Index jumped 2.9% (up 35.7% y-t-d). Japan’s 10-year “JGB” yields added one basis point to 3.09% (up 103bps y-t-d). France’s CAC40 slumped 2.2% (down 3.1%). The German DAX equities index declined 0.7% (up 3.0%). Spain’s IBEX 35 equities index dropped 3.1% (up 10.3%). Italy’s FTSE MIB index lost 2.7% (up 12.3%). EM equities were mostly under pressure. Brazil’s Bovespa index rallied 4.7% (up 19.2%), while Mexico’s Bolsa index declined 0.7% (up 0.3%). South Korea’s Kospi declined 1.1% (up 66.2%). India’s Sensex equities index slumped 2.7% (down 15.6%). China’s Shanghai Exchange Index declined 1.2% (down 3.2%). Turkey’s Borsa Istanbul National 100 index sank 4.9% (up 9.0%).

Federal Reserve Credit declined $9.6 billion last week to $6.692 TN, with a 42-week expansion of $202 billion. Fed Credit was down $2.198 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.965 TN, or 80%. Fed Credit inflated $3.881 TN, or 138%, since November 7, 2012 (725 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt dropped $18.2 billion last week to $2.867 TN - the low back to August 2010. “Custody holdings” were down $249 billion y-o-y, or 8.0%.

Total money market fund assets (MMFA) dropped $45.4 billion to a nine-week low of $7.891 TN. MMFA were up $526 billion, or 7.1%, y-o-y - having ballooned a historic $3.259 TN, or 70%, since October 26, 2022.

Total Commercial Paper sank $55.2 billion to $1.407 TN. CP increased $60 billion, or 4.5%, y-o-y.

Freddie Mac 30-year fixed mortgage rates surged 25 bps to 7.28% (up 94bps y-o-y) - the high back to November 2023. Fifteen-year rates jumped 18 bps to 6.60% (up 105bps) - also the high since November 2023. Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 13 bps to a near two-year high of 7.31% (up 82bps).

Currency Watch

September 28 – Wall Street Journal (Megumi Fujikawa): “Japan’s finance minister reaffirmed that Tokyo is working closely with the U.S. to ensure stability in the foreign-exchange market, as expectations of hawkish shifts on both sides spur yen volatility. ‘Generally speaking, we view the yen’s undervaluation as problematic,’ Finance Minister Satsuki Katayama said… ‘We remain committed to maintaining order in the currency market.’ She added that she agreed in a recent call with U.S. Treasury Secretary Scott Bessent to strengthen cooperation in the currency market, saying that ‘reconfirming this stance at this time holds great significance.’”

For the week, the U.S. Dollar Index rose 0.9% to 101.924 (up 3.7% y-t-d). On the upside, the South Korean won increased 0.8%. On the downside, the Mexican peso declined 2.7%, the South African rand 2.1%, the Swedish krona 1.2%, the euro 1.2%, the Norwegian krone 1.1%, the Australian dollar 1.0%, the New Zealand dollar 0.8%, the Canadian dollar 0.8%, the Brazilian real 0.6%, the Japanese yen 0.4%, the Singapore dollar 0.1%, the Swiss franc 0.1%, and the British pound 0.1%. China's (onshore) renminbi increased 0.1% versus the dollar (up 4.21% y-t-d).

Commodities Watch

The Bloomberg Commodities Index fell 1.9% (up 29.0% y-t-d). Spot Gold dropped 3.4% to $4,141 (down 4.1%). Silver sank 6.1% to $60.3626 (down 15.8%). WTI Crude declined $1.30, or 1.4%, to $91.11 (up 59%). Gasoline fell 2.4% (up 93%), and Natural Gas dropped 5.0% to $3.035 (down 18%). Copper lost 3.2% (up 15%). Wheat fell 2.9% (up 35%), and Corn dropped 5.8% (up 13%). Bitcoin increased $740, or 0.9%, to $84,490 (down 3.6%).

Market Instability Watch

September 30 – Financial Times (Kate Duguid, Peter Wells and Emily Herbert): “US government bonds have posted their worst month in four years as investors warned the world’s most important debt market has been gripped by a ‘vicious loop’ of selling. US 10-year Treasury yields surged more than half a percentage point in September to 5.3%, leaving them at the highest mark since 2007 and a whisker away from levels last seen in 2002. The scale of the move is unusual for a $32tn market that acts as an anchor for global finance. The sell-off… has now triggered waves of selling by funds, according to big investors and traders. They said a feedback loop had taken hold this week: yields rose to levels at which certain funds were obliged to sell Treasuries, setting off further bouts of bond sales... ‘It’s this vicious loop. And you have to wonder what is going to break it,’ said Priya Misra, portfolio manager at JPMorgan... ‘This can keep going for a while,’ she added. ‘No one wants to step in front of the freight train.’”

September 29 – Bloomberg (Sydney Maki and Elizabeth Stanton): “Yields on the US Treasury’s longest-dated bond rose for a sixth straight day, crossing another key threshold amid a deepening selloff across global debt markets. The 30-year rate surpassed 5.61% on Tuesday to touch a level last seen in 2002, returning deeper into territory that had long been the norm before the low-rate era spanning the global financial crisis and pandemic. The leg higher came as inflationary angst and hefty corporate-debt supply weighed on the market.”

September 29 – Bloomberg (Charles Capel and Ryan Vlastelica): “Health and fitness ring-maker Oura Inc. became the latest company to delay a US initial public offering… Oura and some of its backers were looking to raise as much as $2.2 billion in the IPO, which had drawn about four times as many orders as there were shares available… Oura is the highest profile firm to date to delay its offering in the US, a trend that has sent caution through a market waiting for Anthropic PBC’s debut to materialize. Nuclear power services firm Holtec Nuclear Corp. and CVC Capital Partners-backed Bamboo Insurance Services Inc. both postponed their IPOs in recent days, citing market conditions.”

October 1 – Bloomberg (Alexandra Harris): “US funding markets could face disruptions from traders seeking to profit from a continued march higher in Treasury yields. A common way of betting on yields to rise is to create a short position by borrowing a Treasury security in return of an overnight loan of cash to its owner. As demand to borrow a specific note or bond increases, the interest rate on the overnight loan will tend to decline, becoming — in market parlance — ‘special.’ That’s already evident in the market for repurchase agreements, where the rate to borrow the current 10-year Treasury note traded as low as 2.70% before closing at 3.75%...”

September 28 – Bloomberg (Caleb Mutua, Jonathan Ferro and Lisa Abramowicz): “A surge of corporate bond supply in the US high-yield market is starting to overwhelm debt investors, pushing risk premiums to the highest level in five months, according to Goldman Sachs… head of credit strategy. ‘The market’s bracing for the same sort of episodic indigestion that we’ve seen in the investment grade market earlier in the summer,’ Goldman’s chief credit strategist Amanda Lynam said… ‘You’re seeing that in high yield.’”

September 28 – Bloomberg (Aashna Shah, Shruti Singh, and Brian W Smith): “More municipal bond deals are being put on ice as state and local borrowers wait for better days with yields surging to the highest since at least 2011. A $1.8 billion bond sale for the Los Angeles Convention Center has been delayed due to market conditions… Similarly, a roughly $777 million bond sale issued by the Convention Center Authority of the Metropolitan Government of Nashville and Davidson County has been put on day-to-day status… Another roughly $1.7 billion bond sale for the New Jersey Transportation Trust Fund Authority was put on hold due to market conditions…”

September 29 – Bloomberg (Aashna Shah): “A rout rippling through the municipal bond market has triggered the busiest day of trading in US state and local government debt in more than 30 years. Some 117,419 municipal bond trades were reported Monday, the most since at least 1995… On Monday, MSRB data show that $21.8 billion of muni bonds traded, less than trading days earlier this month but above the one-year average of about $14.6 billion.”

October 1 – Bloomberg (Zahra Tayeb and Emily Graffeo): “Investors are selling mortgage bond funds at the fastest clip in more than six years as the debt takes a hit from big jumps in yields. Exchange-traded funds that own US mortgage-backed securities notched $2.4 billion of net outflows in September, the most since March 2020.”

September 25 – Reuters (Patturaja Murugaboopathy): “A growing wall of US corporate debt is set to mature from 2027, putting pressure on companies to refinance borrowings raised at ultra-low interest rates during the pandemic. About $4.3 trillion of non-financial corporate bonds issued in US markets will mature between 2027 and 2031… Annual maturities rise from about $572 billion in 2027 to roughly $1.03 trillion in 2030, after many companies pushed debt into later years through refinancing. The challenge comes as global debt has ⁠climbed above a record $365 trillion… The benchmark 10-year US Treasury yield is above 5%, around its highest level since 2007. As the debt comes due, companies that locked in cheap fixed-rate funding earlier in the decade will increasingly have to refinance at higher costs, pressuring earnings and cash flow. The burden will be heaviest for lower-rated borrowers. High-yield bond maturities jump from about $68.5 ⁠billion in 2027 to $314.1 billion in 2029, according to LSEG, while investment-grade maturities increase to $512.6 billion from $437 billion.”

U.S. Credit Trouble Watch

September 28 – Bloomberg (Caleb Mutua, Jonathan Ferro, and Lisa Abramowicz): “A surge of corporate bond supply in the US high-yield market is starting to overwhelm debt investors, pushing risk premiums to the highest level in five months, according to Goldman Sachs… head of credit strategy. ‘The market’s bracing for the same sort of episodic indigestion that we’ve seen in the investment grade market earlier in the summer,’ Goldman’s chief credit strategist Amanda Lynam said... ‘You’re seeing that in high yield.’ A string of chunky junk bond offerings — including a $10 billion deal from SoftBank Group Corp. — had pushed September issuance to $38.51 billion as of Friday, making it the busiest month this year for the high-yield market.”

September 30 – Bloomberg (Josie Reich): “The spread on the riskiest US corporate bonds has jumped above 1,000 bps over Treasuries for the first time since the regional banking crisis in 2023. That level of risk premium typically implies high probability of default, restructuring or loss. Debt that is rated CCC — the lowest tier of junk — traded at a spread of 1,007 bps on Wednesday, up from 860 bps at the start of September. That’s the widest since March 2023, when investors dumped risky credit as a regional banking crisis took down Silicon Valley Bank and Credit Suisse.”

September 28 – Wall Street Journal (Shane Shifflett and Matt Wirz): “Most of the money flowing through Mark Walter’s network of companies traces back to Delaware Life Insurance, a run-of-the-mill insurer he bought 13 years ago and used to acquire the Los Angeles Dodgers and bankroll a financial empire. Delaware Life mutated once Walter took over: Obscure private-credit deals grew to about 45% of its nearly $42 billion debt investments, compared with 9% in 2014… Two out of the insurer’s three largest investments are to affiliated Walter companies. The other is to a company with business ties to Walter’s financial firm Guggenheim Partners. The shift is a stark example of one of the biggest trends on Wall Street: private-credit firms gobbling up life insurers and funneling policy premiums into high-interest private loans.”

October 2 – Bloomberg (Olivia Fishlow): “Blue Owl Capital Inc. again limited redemptions from two of its private credit funds at 5%, as fears around artificial intelligence kept requests at its flagship technology fund well above industry peers. Investors in the roughly $5 billion Blue Owl Technology Income Corp., which is the largest fund of its kind mainly focused on technology lending, saw shareholders look to pull 39% of shares in the third quarter, a slight increase from the 38.1% requested previously.”

September 29 – Bloomberg (Martin Z. Braun): “Nuveen LLC was behind a flurry of trading in Brightline’s municipal debt this week, offering up its entire position in the bankrupt private railroad’s senior uninsured bonds… The asset manager put up for sale roughly $190 million of Brightline bonds through a process known as bids-wanted-in- competition… The portfolio sale, spanning several individual securities, went through on Monday at 45 cents on the dollar, a steep decline from where the debt last changed hands…”

Global Credit Crisis Watch

October 2 – Bloomberg (James Hirai and Alice Atkins): “French government bonds deepened this week’s slump, with investors demanding the biggest yield premium to hold the bonds over safer German debt since the region’s debt crisis. The yield spread between French and German 10-year bonds increased to 154 bps on Friday, set for the widest since 2011… ‘The moves have been eye-watering,’ said Kim Crawford, global rates portfolio manager at JPMorgan Asset Management... ‘A lot of de-risking has come into the market at a pace and scale that the market has struggled to absorb. This positioning washout has to finish, it’s an open question whether it already has.’”

September 29 – Bloomberg (James Hirai): “The UK government paid the highest yield since 1999 at an auction of 10-year debt… Britain’s Debt Management Office sold £4.25 billion ($5.6 billion) of 4.875% coupon bonds maturing in July 2036 at an average yield of 5.383% on Tuesday. A sale of the same security last month notched an average yield of 5.16%, which was already the highest in nearly two decades.”

September 30 – Bloomberg (Richard Henderson): “The global private credit industry has gotten yet another jolt with money managers being blocked from cashing out of their investments, adding to concerns about ‘gating’ that shook markets earlier this year. One of Australia’s biggest private credit firms, Metrics Credit Partners, stopped investors from accessing some funds with redemptions of units in the underlying funds being suspended temporarily… Private credit risks were thrust into the limelight earlier this year after a series of similar incidents among giants of the industry.”

September 29 – Bloomberg (Adam Haigh and Richard Henderson): “One of Australia’s biggest private credit firms, Metrics Credit Partners, stopped investors from accessing some funds in a move similar to steps taken by global peers earlier this year that fueled concerns about stresses in the industry. Redemptions of units in the underlying funds ‘have now been suspended temporarily,’ according to… Perpetual Ltd. Auditor KPMG said it wouldn’t be in a position to provide its audit opinion on the financial reports by Sept. 30.”

September 30 – Financial Times (Michelle Chan): “Global credit markets could face significant volatility if there is a downturn in the booming AI sector, as rising debt levels among tech borrowers leave investors exposed to ‘an unusually concentrated investment cycle’, KKR warned in a report… With tech firms projected to pour nearly $8tn into AI infrastructure by 2030, a fifth of the investment-grade index — historically home to some of the safest securities — could end up being exposed to AI risks…”

October 1 – Reuters (Stella Qiu): “Australian home prices fell for a sixth straight month in September, on track for the worst downturn in three decades, with persistent inflation pressure leaving little prospect of relief from high interest rates after this week’s hike. Figures from… Cotality showed national home prices fell 1.1% in September from August, when they dropped by a downwardly revised 1.2%. That left prices 5.2% below their peak and flat from a year ago.”

Leveraged Speculation Watch

September 29 – CNBC (Lee Ying Shan): “Hedge funds are becoming a force to be reckoned with in the roughly $30 trillion U.S. Treasury market, stepping in at a time when some traditional long-term investors have been looking at other options. The shift is helping the government find buyers as its pile of debt grows, but it may also be making the world’s largest bond market more vulnerable, experts told CNBC. Hedge funds’ cash Treasury holdings reached $2 trillion at the end of 2025, nearly three times their level five years earlier, the U.S. Treasurys Office of Financial Research said last month. Marketable Treasury debt — which is traded in the secondary market — was $28.9 trillion, putting hedge funds’ share at a record 7%.”

October 1 – Bloomberg (Nishant Kumar and Liza Tetley): “Hedge fund titan Millennium Management saw zero return amid volatility last month, when inflation concerns pushed bond yields to multidecade highs and hit fixed-income wagers. The $97 billion multistrategy hedge fund ended flat during the period and was up 8.1% through September this year… Hedge funds faced challenging conditions last month with the Iran war’s impact on oil supply stoking inflation worries, central bank tightening and a broad bond selloff.”

October 1 – Bloomberg (Yasumasa Nakagomi): “Global macro funds may shift focus to Japan’s sovereign debt for leveraged trades as US Treasury opportunities dry up. Rising Federal Reserve rate hike expectations undermined the Treasury basis trade, which involves shorting futures, buying cash bonds and financing the position in the repo market. Higher US funding costs have rendered the strategy unprofitable, prompting hedge funds to unwind short positions and seek new hunting grounds. A rapid rise in Japanese bond futures open interest suggests a reverse leveraged trade is taking root.”

September 30 – New York Times (Matthew Goldstein and Rob Copeland): “There were, in retrospect, more than a few details about Situational Awareness that might have given a savvy Wall Street lender pause. The eight-person hedge fund was led by a 24-year-old without a whiff of trading experience. Few people were assigned to monitor investment risk at the fund, which had been created only in 2024, and the chief compliance officer at the time split his time between his apartment in Reno, Nev., and the headquarters in San Francisco... Yet none of that stopped Wall Street’s biggest banks, including Goldman Sachs and Bank of America, from lending the hedge fund tens of billions of dollars. That allowed it to build a giant one-way bet on artificial intelligence stocks that imploded over the summer in spectacular fashion when some of its investments suffered steep declines.”

September 28 – Financial Times (Jamie John): “The US Treasury… took its first concrete steps towards cracking down on a suite of strategies used by wealthy US investors to cut their tax bills. The department warned that it could clamp down on ‘potentially abusive’ tactics and issued a ruling targeting the aggressive use of ETFs to avoid taxable gains… In an accompanying ruling, the Internal Revenue Service targeted a strategy known as the 351 conversion, which allows investors with appreciated assets to rebalance their portfolios without incurring taxable gains… ‘This is a seismic moment in the ETF market,’ said Brent Sullivan, an independent tax analyst and editor of the Tax Alpha Insider newsletter… Hedge funds offering tax alpha strategies accrued more than $90bn between the start of 2025 and April this year… Since 2021, ETFs created using 351 conversions have raised a total of at least $21bn…”

Iran War Watch

September 29 – Axios (Barak Ravid): “Efforts this week by Qatari mediators to broker a diplomatic breakthrough between the U.S. and Iran have made little progress, with neither side willing to budge, according to three sources... The stalemate bolsters the belief on both sides that a renewed military conflict is becoming more likely. U.S. officials think President Trump could order a return to major combat operations after the midterms. Qatari officials will keep trying but are growing increasingly frustrated with both sides, two of the sources said… One of the sources said there was no significant movement in the talks on Monday. ‘It is stuck. The Iranians are asking for things the U.S. can’t accept and the U.S. thinks it is winning so there is no need for compromise,’ the source said.”

October 1 – Wall Street Journal (Lara Seligman and Shelby Holliday): “The Pentagon is sending a third aircraft-carrier strike group and an additional Marine expeditionary unit to the Middle East, according to U.S. officials, adding 9,000 to 10,000 more troops to the region as President Trump considers renewing strikes on Iran after the midterm elections… Trump recently told aides that he expects to resume bombing Iran that same month… The aircraft carrier USS Theodore Roosevelt left its home port of San Diego on Sunday on a scheduled deployment, while the USS Makin Island Amphibious Ready Group… left on Monday.”

October 1 – Axios (Barak Ravid): “The U.S. military in recent weeks sent two additional Patriot missile batteries to protect oil and gas facilities in Saudi Arabia and Qatar, two U.S. officials and one regional source said. The U.S. wanted to reassure both allies that it would protect their key energy facilities in case President Trump decides to resume major combat operations against Iran. Trump said on Thursday that he’s considering renewing a bombing campaign in the coming weeks. ‘Now I have to make a decision: either Iran signs the deal, or it won’t exist any longer,’ he said.”

October 1 – Reuters (Parisa Hafezi): “Iran is preparing a broader and more forceful response if the United States resumes large-scale military attacks, sources said, while continuing a diplomatic push that Iranian officials privately see as unlikely to succeed. The planning reflects a conviction within Iran’s leadership that any renewed US campaign must be met with a stronger response than before, even as Tehran seeks to avert escalation through talks. Senior commanders are reviewing plans to expand potential targets beyond US-linked assets to countries that support US military operations and possibly to locations outside the Middle East, according to three senior Iranian officials and an insider familiar…”

September 27 – CNBC (Garrett Downs and Azhar Sukri): “Iranian Foreign Minister Abbas Araghchi said… his country is ready for a ‘doomsday’ war with the U.S., but that he is leaving diplomacy on the table so as not to ‘miss any chance for peace.’ … ‘If you ask us, there is no reason why we should go back to diplomacy, but I am still trying diplomacy because I think we shouldn’t miss any chance for peace,’ Araghchi said. ‘We are ready to negotiate as much as we are ready to face any challenge… We stand firm in the face of any aggression against us, even if it comes to a doomsday war.’”

Iran War Ramifications Watch

October 1 – New York Times (Lisa Friedman and River Akira Davis): “The Iran war has sent diesel prices soaring around the world, straining national budgets, adding costs to businesses and snarling supply chains from farms to ports. Now President Trump is threatening to ban or restrict the export of diesel from the United States, which is the top supplier to more than a dozen countries including Mexico, Canada and much of Europe. Oil executives and world leaders are issuing increasingly dire warnings that the result could be global price spikes on everything from groceries to jet fuel. ‘I’ve sent a very clear signal to my American counterpart and also the public, which is that it is not in the interest of anybody — not the U.S., not us — to not have as free a flow of energy as possible in these difficult times,’ Dan Jorgensen, the European Union’s energy minister, said…”

September 29 – Financial Times (Verity Ratcliffe and Alice Hancock): “Middle Eastern oil exports have rebounded to their highest levels since the Iran war began in February, as Gulf producers find ways around the Iranian blockade of the Strait of Hormuz. Shipments from Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait and Iraq have averaged 15.5mn barrels a day in September, the highest level of the war and more than 80% of the average in the 12 months before the conflict began, according to… Kpler.”

October 1 – Bloomberg (Magdalena Del Valle): “Governments around the world are running out of room to shield consumers from higher energy prices resulting from the Iran war and other crises, with fuel subsidies potentially costing more than $1 trillion this year, a United Nations study found. Global policy interventions to cushion the impact of rising food and energy prices will become more difficult to sustain as a result of higher borrowing costs and what’s on track to be the strongest El Niño on record, according to a UN Development Programme report…”

October 2 – New York Times (Keith Bradsher and Alexandra Stevenson): “China is again restricting exports of diesel, jet fuel and gasoline, threatening to squeeze global energy markets already strained by fuel supply disruptions. China’s state-owned oil giants have recently started slowing exports of refined products… Shipments are continuing to countries with close ties to Beijing, including Cambodia… The move echoes restrictions Beijing imposed in March…”

September 26 – Financial Times (Alice Hancock): “The value of older supertankers has exceeded new-build vessels for the first time on brokers’ records, as shipowners rushing to take advantage of high freight rates in the Gulf contribute to a ‘bananas’ market for large crude carriers. Prices for five- and 10-year vessels have soared… Record-high Middle East-to-Asia freight rates for so-called very large crude carriers — supertankers that carry 2mn barrels — of $1.2mn a day are driving up ship prices. A shipbroker working on supertanker transactions described the market as ‘bananas’. In the past week, several ships built before 2016 were sold for $150mn or higher, compared with an average of $135mn for new builds, brokers said.”

Trump Administration Watch

September 29 – Associated Press (Christopher Rugaber, Will Weissert and Meg Kinnard): “President Donald Trump… said he and a large group of leaders of artificial intelligence companies had signed a voluntary accord that will include internal and external reviews during a meeting at the White House aimed at addressing Americans’ fears about the technology. ‘I think I’m seeing tremendous self-policing. And they understand that they have to self-police,’ Trump told reporters… Trump and House Speaker Mike Johnson met leading executives from top tech firms that are spending hundreds of billions of dollars to build out AI infrastructure…”

September 29 – Wall Street Journal (Amrith Ramkumar): “President Trump promised not to hamper the artificial-intelligence industry with regulations, doubling down Tuesday on his light-touch approach despite growing calls from Silicon Valley and the public for new guardrails. ‘I will never stifle the growth of technology that will be bigger than the industrial revolution,’ he said at an event to unveil a new America.gov website built with AI to make it easier for citizens to access federal government services. The Justice Department, Federal Bureau of Investigation and existing authorities are sufficient to hold accountable bad actors using AI for nefarious purposes, he said.”

September 29 – New York Times (Sheera Frenkel, Dustin Volz and Dylan Freedman): “Months before OpenAI’s artificial intelligence went rogue, two employees raised an alarm with top executives. They were ignored. In emails, the employees said they worried that OpenAI’s newest artificial intelligence models were not being appropriately monitored during testing to gauge the technology’s sophistication and to secure the models, according to messages… In response, OpenAI executives told the employees that the tests needed to move forward as quickly as possible to release the A.I. models on time. No additional security protocols were instituted, said the workers…”

October 1 – Reuters (Kate Abnett, Jarrett Renshaw and John Irish): “The Trump administration has told Germany and France to draw down emergency diesel inventories to help ease soaring global fuel prices or face a potential US diesel export ban… The warning marks an escalation in pressure on Europe as US President Donald Trump considers a potential ban to help bring down US fuel prices ahead of November's midterm elections.”

October 1 – Bloomberg (Catherine Lucey and Josh Wingrove): “President Donald Trump said Federal Reserve Chairman Kevin Warsh should have voted against a move to hike interest rates last month, but said he did not blame him for the central bank’s decision. ‘I don’t blame Kevin Warsh. I probably would have voted against the board if I were him,’ Trump told Time Magazine… ‘It’s become very political. I don’t blame you, Kevin. I think it’s too bad. Not fair,’ Trump said… ‘We have a very hostile board, and the board says, ‘We want to hurt Trump.’ They’re not doing this for you. They’re doing this because they have Trump derangement syndrome,’ he added.”

September 30 – Bloomberg (Jeff Mason and Enda Curran): “President Donald Trump said former Federal Reserve Chair Jerome Powell should resign from the central bank’s Board of Governors over findings the central bank mismanaged the renovation of its headquarters. ‘The Building is over budget, at a Record Setting rate and, at a minimum, ‘Too Late’ Powell should be forced to resign from the Board,’ the president posted… Trump’s remarks came after the Fed’s internal watchdog… found no evidence of criminal wrongdoing and didn’t identify any ‘administrative misconduct’ connected to the $2.4 billion project… ‘This is Jerome Powell’s fault, and he should be forced to resign, IMMEDIATELY! If he doesn’t resign, he should be sued, at the highest level, by the United States Government, for either corruption or incompetence, both of which are completely unacceptable,’ Trump posted.”

October 1 – CNBC (Matt Peterson): “President Donald Trump has new ammunition he can use in his campaign against his perceived opponents at the Federal Reserve… Combined with separate disputes involving governors Lisa Cook and Michael Barr, Trump’s decision to pin the headquarters spending issues on former Chair Jerome Powell means the president could potentially seek the removal of as many as three of the Fed’s seven board members. But recent court rulings suggest any attempt would face significant legal hurdles.”

September 28 – Bloomberg (Julia Fanzeres): “White House National Economic Council Director Kevin Hassett suggested that, while the US economy is now on track for strong growth, ‘outside’ factors could get in the way of the administration's hopes for at least a 3% expansion rate. Given gains in US productivity and wages, economic growth "should be cruising around 4% instead of 3%," Hassett said… He said that was his ‘sort of base case — no disruptions from the outside world.’”

October 1 – Bloomberg (Katy O'Donnell): “The watchdog for the nation’s top housing regulator says it will be forced to cut up to 80% of its staff and end most criminal probes as a result of dramatic budget cuts announced… by Federal Housing Finance Agency Director Bill Pulte. Pulte — who has used his perch at the normally sleepy financial regulator to go after President Donald Trump’s perceived adversaries over allegations of mortgage fraud – is pushing out the top mortgage-fraud enforcers, the acting inspector general for the FHFA suggested in a letter late Wednesday to congressional overseers.”

September 29 – Bloomberg (Joe Deaux): “Peter Navarro, a longtime trade adviser to President Donald Trump, on Tuesday excoriated Canadian lobbyists, telling them during a conference in Washington to leave the US. Navarro… said that the US must rebalance trade with all other nations in order to protect itself from Beijing’s dumping and subsidies. That includes Canada, he said… ‘Do you really want to spend any time on Canada?’ Navarro said. ‘Any Canadians here? Like, please, if you’re on K Street, get the hell out of the country.’”

September 29 – Wall Street Journal (Jared Malsin and Sangar Khaleel): “After spending more than 23 years and $1.7 trillion, America is winding down what critics have called its forever war in Iraq, closing the last major U.S. military base on Wednesday. ‘We don’t think we need the military there anymore,’ President Trump said during a White House visit by Iraqi Prime Minister Ali al-Zaidi in July. ‘We have a fantastic champion, a new champion,’ the president said. ‘He’s young, and he’s handsome.’”

Trade War Watch

September 29 – Associated Press (Paul Wiseman): “U.S.-Canada relations, already tense, are likely to deteriorate further after the United States went ahead… with a decision to ban nearly $1 billion worth of Canadian imports, including alcoholic beverages, dairy products and motorcycles. The ban amounts to barely a ripple in $880 billion worth of annual two-way trade between the two northern neighbors. But it marks another ratcheting up of President Donald Trump’s second-term trade war with America’s longtime ally and trading partner.”

September 28 – Associated Press (Chan Ho-Him and Kanis Leung): “The United States and China… released reciprocal lists of nonsensitive products worth about $30 billion each that will see tariff cuts, from American hair products to Chinese toys, in a deal expected to help bolster bilateral trade… The U.S. had already reduced tariffs against China after Trump’s tariffs reached as high as 145% at one point last year, as tensions between the two countries eased.”

U.S./Russia/China/Europe/Iran Watch

September 29 – Politico (Nette Nostlinger): “German Chancellor Friedrich Merz… Moscow had proven it was not ready for ‘serious talks’ after Russian Foreign Minister Sergey Lavrov criticized a surprise meeting with his German counterpart. German Foreign Minister Johann Wadephul held a meeting with Lavrov at the U.N. on Saturday in what marked the first meeting between ministers from the two countries since Russia’s… invasion of Ukraine in 2022… Lavrov characterized Wadephul’s positions during the talks as ‘nothing new.’ Merz struck back at the Russian foreign minister… ‘Russia’s subsequent assessment of that meeting has shown that Russia is apparently not at all interested in serious talks at this time,’ Merz said. ‘We will therefore do everything in our power to continue assisting Ukraine — not only militarily, but also politically, financially, and economically.’”

September 30 – Bloomberg: “Russia warned it could strike defense manufacturers in European countries that help supply arms to Ukraine, the latest in Moscow’s increasingly direct threats against NATO members over support for Kyiv. ‘Factories producing weapons for Ukraine in European countries are potential military targets for Russia,’ Foreign Ministry spokeswoman Maria Zakharova told reporters... ‘No one should assume that military plants outside Ukrainian territory’ producing arms for Kyiv ‘will be safe.’”

October 1 – Financial Times (Anne-Sylvaine Chassany and Katya Arenina): “Europe is preparing for ‘severe’ Russian hybrid attacks, said German Chancellor Friedrich Merz as Vladimir Putin threatened that his conflict with the west could reach a ‘fatal point of no return’. Russia’s escalating rhetoric underscores a tenser phase of the war in Ukraine, with Moscow intensifying its strikes on Kyiv and EU leaders sounding the alarm over what they describe as a Russian campaign of sabotage, cyber attacks and other destabilising operations. Moscow’s escalation was a ‘sign of Russia’s desperation in the face of its unsuccessful war in Ukraine’, Merz said… ‘We are preparing for further hybrid attacks, including severe ones,’ he said…”

October 1 – Reuters (A. Anantha Lakshmi): “Russia has warned NATO it would be ready to resort to nuclear weapons if the Western alliance attempted to cut off Kaliningrad, a Russian exclave that borders the Baltic Sea. In a document sent to NATO and seen by Reuters, Moscow accused the alliance of a ‘dangerous and reckless course’ that entailed ‘high risks of the outbreak of a direct armed conflict’… ‘Russia will be ready to use the entire arsenal of forces and capabilities at its disposal, including nuclear weapons, in order to defend its territory should NATO countries undertake any attempt aimed at isolating the Kaliningrad Region from the rest of the country,’ the diplomatic note said.”

Ukraine War Watch

October 1 – Financial Times (Christopher Miller): “Vladimir Putin has instructed his military leaders to abandon the rules of war, prompting a steep increase in strikes on civilian targets amid a major push to regain the advantage in the conflict, according to intelligence intercepted by Kyiv. Speaking in a bomb shelter inside a school that had just been hit by a Russian jet-powered drone, President Volodymyr Zelenskyy told the FT… Ukrainian spy agencies had obtained information that the Russian president had scrapped the constraints that governed earlier air campaigns. ‘He said there are no rules now,’ Zelenskyy said…”

October 2 – New York Times (Constant Méheut): “For months, Ukrainian officials have warned people to brace for what could be their hardest winter at war. Russia, they said, would use its ever more powerful weapons to try to cripple the country’s power grid. The first big strike was expected later this fall… Russia did not wait that long. Before dawn on Wednesday, missiles and drones slammed into a large thermal power plant and other energy facilities, shaking the Ukrainian capital, Kyiv, with explosions… The attack, Ukrainian officials said, marked the opening salvo of a new campaign to plunge Ukrainian cities into cold and darkness…”

September 28 – Reuters (Heejin Kim): “Ukrainian President Volodymyr Zelenskiy said… there are more than 8,000 North Korean troops on Russian territory and preparations are underway to deploy another 10,000 troops. Citing ‘new data’ on the deployment of North Korean troops to Russia, Zelenskiy said in a post on X they were ‘being selected for training and subsequent deployment to Russia.’”

AI Bubble/Arms Race Watch

September 27 – CNBC (Kif Leswing, Isabel O’Brien and Seema Mody): “With Treasury yields climbing this week to their highest levels since 2007, companies reliant on debt are poised to see their borrowing costs rise. That means the AI infrastructure buildout… is about to get even more expensive. JPMorgan… estimated in June that $4.1 trillion in AI-related debt will be issued through 2030, as data center companies and others tied to the artificial intelligence boom race to build up capacity to meet what many industry experts view as insatiable demand for AI services. As borrowers go back to the market, they’re now looking at a 10-year Treasury yield that sits near 5.17%, up about 1 percentage point since the start of the year…”

September 28 – Reuters (Echo Wang and Aditya Soni): “Anthropic plans to caution potential investors in its IPO that advanced AI could pose ‘catastrophic or existential risks to humanity,’ an extraordinary warning by a company seeking to profit from the same technology. The company’s IPO prospectus…, highlights risks associated with its AI models, which it said could exhibit ‘self-preserving behaviors,’ including attempts to ‘resist shutdown,’ to ‘conceal or manipulate information’ and behavior ‘resembling blackmail.’ ‘Our development of highly advanced models, platforms, and applications and expansion of use cases could further increase the risk that our models cause harm,’ Anthropic said in the filing.”

September 28 – Reuters (Echo Wang): “Anthropic is making a massive bet that AI will transform the global economy more profoundly than industrialization, electricity and the internet, according to its IPO prospectus... But the cost to get there will be staggering. Anthropic reported a net loss of $42 billion in 2025, and plans to spend $518 billion on cloud, computing and infrastructure obligations in coming years… The prospectus details how the company has grown sharply in the last year — while also posting wider losses. Revenue grew 12-fold in 2025 to nearly $4.6 billion, even as the company lost more than $8 billion on an operating basis…”

October 1 – Financial Times (Toby Nangle): “There are lots of ways in which circular financing among AI companies can be organised. A new report from a team of Bank for International Settlements researchers lists three. First, there are those tech firms who receive both financing and business from another tech firm; so, maybe including Amazon pouring billions into Anthropic while also supplying the Trainium chips used to train Claude. Second, suppliers could be financing customers to stimulate demand for their products… Nvidia’s pivot to providing ‘balance sheet as a service’ comes to mind — along with numerous reports of the giant chipmaker pumping cash in the direction of its financially more precarious customers so that they can buy more chips… Third comes everything else: reciprocal commercial relationships where goods or services flow both ways. Looking at a universe of 1,246 AI firms split across compute, infrastructure, data tools, models and applications, the report’s authors — Jon Frost, Rudraksh Kansal, Kumar Rishabh, Vatsala Shreeti and Leanne Si Ying Zhang — found, perhaps unsurprisingly, a lot of circular relationships.”

September 28 – Financial Times (Lee Harris and Ryan McMorrow): “Nvidia has held talks with insurance companies about shouldering the risks of lending against its chips as chief executive Jensen Huang pushes to unlock more demand for its semiconductors beyond Big Tech groups. The chipmaker has approached insurance companies about a range of structures that could shift some of the risk of capital-intensive semiconductor financing to insurers and other investors… One idea under discussion is insurance against losses on loans to upstart cloud computing companies, or ‘neoclouds’, if they default and the Nvidia chips pledged against their debt cannot be resold for enough to repay lenders. Such protection could encourage more capital to flow to a group of Nvidia customers that lack the balance sheets of Big Tech groups.”

September 28 – Bloomberg (Saritha Rai): “The global AI industry needs to earn $6 trillion in annual revenue by 2031 to justify the capital being deployed to build data centers around the world, Bain & Co. said. Existing consumer and enterprise AI services may generate as much as $1.8 trillion of that sum, leaving $4.2 trillion in new revenue that needs to be created, the consulting firm said… ‘What the industry needs is a wave of innovation that will dwarf what mobile and cloud unlocked,’ said David Crawford, the report’s lead author and chairman of Bain’s Global Technology, Media, and Telecommunications practice. ‘AI infrastructure is being built well ahead of the demand curve and funding it sustainably will require adding approximately 1% to the annual global GDP growth rate,’ he said.”

October 2 – Wall Street Journal (Greg Ip): “Believers in the artificial-intelligence boom need to take a very close look at this number: 9% of GDP. That is how much American businesses and consumers eventually have to spend per year on the services of companies like Anthropic and OpenAI to justify the staggering sums being committed to the technology right now. Is it plausible that Americans will spend as much of their income on this one technology as they do on food? Roughly twice what the nation pays for all forms of energy or all computers and software? Seven times what consumers spend on phone, streaming, and internet services combined? You should be skeptical.”

October 1 – Financial Times (Michelle Chan and Rafe Rosner-Uddin): “Amazon is seeking to offload about $8bn of advanced Nvidia chips to external investors through a new vehicle aimed at strengthening its balance sheet, according to people familiar... The… cloud giant has held talks with investors in recent weeks to gauge interest in the deal, which would allow the company to spin off thousands of Grace Blackwell chips it is deploying in data centres across the US into a special-purpose vehicle. Amazon will then lease the advanced AI chips back from the SPV, which would tap outside investors through debt issuance.”

September 30 – Bloomberg (Dawn Lim): “CBRE Group Inc. executives have a warning for artificial-intelligence upstarts hunting for data centers: Find a serious partner to guarantee lease payments or face an uphill battle securing new sites. Brokers at the world’s largest commercial real estate services firm told clients in big US markets that such a backstop is a must. Several said they’ll only enter serious talks when there’s a partner with strong credit ratings to stand behind tenants’ obligations. Their message is targeted at so-called neoclouds, firms that rent out access to highly sought-after AI chips.”

September 29 – Bloomberg (Scott Carpenter and Rachel Graf): “PGIM, the asset management arm of Prudential Financial Inc., was the anchor investor on a recent collateralized loan obligation that included a novel safeguard capping the share of its AI-related debt at 15%... The $500 million CLO, issued last week by insurer Allstate Corp., was the first to contain such an explicit restriction on collateral tied to AI…”

Global Bubble Watch

October 1 – Reuters (Leika Kihara): “Factory activity across Asia expanded in September thanks to the global AI boom…, offering some relief to policymakers who are concerned about nagging cost pressures attributable to the US-Israeli war on Iran. While a renewed rise in energy prices clouded the global economic outlook, export powerhouses Japan, South Korea and Taiwan saw manufacturing activity expand on solid demand for chips and artificial intelligence-related goods.”

October 1 – Wall Street Journal (Joe Stonor): “Fragile artificial-intelligence sentiment and higher borrowing costs helped dampen merger-and-acquisition activity in the third quarter, but giant AI deals mean 2026 is still on track to be the second-highest-volume year for global M&A ever, according to Mergermarket data. North American M&A dropped in the third quarter to $560 billion—a 23% fall on the same period last year… The clamor for large transactions faded, with the third quarter producing just six megadeals—deals valued at $10 billion or more—compared with 19 in the second quarter.”

September 30 – Bloomberg (Michelle F Davis and Ryan Gould): “Dealmakers have ground to make up as they chase a record year of mergers and acquisitions, after a slower third quarter brought fresh challenges that cost Wall Street some momentum. The value of announced deals in the three months through September dipped roughly 10% year-on-year, according to data compiled by Bloomberg. But with $3.8 trillion of transactions over the year to date, companies and their advisers could yet top the $5 trillion-plus record M&A haul of 2021, when lower interest rates and pent-up pandemic demand drove activity.”

Inflation Watch

September 30 – Associated Press (Christopher Rugaber): “Inflation slowed a bit last month as Americans ramped up their spending… Consumer prices rose 3.4% in August compared with a year earlier…., below the 3.7% economist expectations. On a monthly basis, prices climbed 0.3%, up from 0.1% in July, a sign prices that are still running hot. Excluding the volatile energy and food categories, inflation also came in lower than expected, rising 3% in August from a year ago. And from July to August, core prices rose just 0.2%, up from 0.1% the previous month.”

October 1 – Financial Times (Olaf Storbeck and Ian Smith): “Eurozone inflation shot up to a three-year high of 3.8% in September after the escalating conflict in the Middle East triggered a resurgence in oil and gas prices. The reading… was up from 3.2% in August and higher than economists’ forecast of 3.6%... In all four of the Eurozone’s largest economies, inflation rose at a faster pace than expected, with Spain reporting an annual rate of 5%.”

September 30 – Wall Street Journal (Ed Frankl): “Inflation among leading eurozone nations climbed to multiyear highs this month… Consumer prices rose 3.3% in Germany, 3.4% in France and 4.1% in Italy compared with the same month of last year, up from August's 2.9%, 2.6% and 3.2%... The readings, based on data harmonized to European Union standards, were higher than expected…”

September 29 – Bloomberg (Daniel Basteiro): “Spanish inflation accelerated more than anticipated and further beyond the European Central Bank’s 2% target, reinforcing the case for interest rates to be lifted further. Consumer prices jumped 5% in September, up from 4.6% in August, data Tuesday showed. That’s the highest since February 2023 and above the 4.9% median estimate…”

Federal Reserve Watch

October 1 – Reuters (Ann Saphir): “The US central bank will need to raise short-term borrowing costs by at least another half of a percentage point to turn monetary policy ‘modestly restrictive’ and get inflation back on track…, Dallas Fed President Lorie Logan said… The Fed’s quarter-point policy rate increase last month… was ‘an important first step’ in tightening policy, Logan said… ‘Still, I currently estimate the target range needs to rise an additional 50 bps or more to appropriately balance the outlook and risks for our dual mandate goals,’ she said. ‘We must restore price stability… A few additional increases in the target range would undo the FOMC’s risk management cuts from last fall,’ Logan said…”

September 29 – Reuters (Howard Schneider): “Too big a pullback in the US central bank’s communications could lead to higher and more volatile interest rates and inflation if the public and businesses are left to guess how it would react to different economic developments, St. Louis Federal Reserve President Alberto Musalem said… Fed Chairman Kevin Warsh… has set up a task force to make recommendations on its communications, which he feels have become too freewheeling… But ‘a central bank that does not explain how or why it makes policy decisions leaves the public to guess’ about policy decisions, ‘which results in added premiums for uncertainty,’ and ultimately higher interest rates for businesses and households, ⁠and more risk of inflationary or even deflationary spirals where public behavior becomes self-reinforcing, Musalem said.”

September 30 – Reuters (Michael S. Derby): “Federal Reserve Bank of Minneapolis President Neel Kashkari said… he expects the central bank to raise rates again depending on how the economy performs, amid a very necessary effort to bring inflation back to target… ‘I don’t want to blindly dismiss what markets are signaling because markets right now are signaling that policy may have to go even tighter than we expect,’ Kashkari said. ‘I want to pay attention to it, but I don't want to blindly follow it either because there are a lot of different factors that can go into some of these market judgments,’ he said.”

October 1 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Minneapolis President Neel Kashkari said he doesn’t know how high interest rates will have to go to cool prices, adding it’s the central bank’s job to tame inflation after five years of supply shocks. ‘We will do what we need to do to get inflation back down to our target,’ Kashkari said... ‘Now, the question is ultimately how high’ rates have to go, he said. ‘I don’t know the answer to that.’”

September 28 – Bloomberg (Andrew Ackerman): “Federal Reserve Governor Lisa Cook said future productivity gains from artificial intelligence may not be enough to offset near-term price pressures, warning this trend could drive up inflation across the economy… ‘Currently, I anticipate that productivity gains will provide modest disinflation within the next few years,’ Cook said… ‘However, I do not expect those effects to arrive in time to offset the broadening inflationary pressure later this year.’”

September 29 – Wall Street Journal (Jessica Coacci): “Federal Reserve governor Michael Barr said related demand from the artificial intelligence buildout is having a measurable effect on prices. Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion… ‘The combined effect has meant we have been knocked off course on our progress toward our 2% goal,’ according to a published text of his remarks. Barr said the most important effects of the AI-buildout on the U.S. economy are likely to be a strong boost to economic activity from fixed investments by businesses and a surge in prices for computer chips and related equipment…”

September 29 – Wall Street Journal (Matt Grossman and Nick Timiraos): “A top Federal Reserve official suggested… that the central bank could wait until December before raising interest rates again, pushing back against market bets on a follow-up increase next month… Inflation remains too high, and another rate increase ‘late this year’ might be appropriate, Williams said. But for now, the Fed can likely take time to review additional data before tightening policy further, he said. ‘With the policy action we took at our September meeting, there is no need for urgency,’ Williams said…”

September 30 – Bloomberg (Katanga Johnson): “The Federal Reserve voted to finalize its landmark stress test changes in a major victory for Wall Street’s lending giants. ‘The stress test is an essential component of our regulatory capital framework,’ said Fed Vice Chair for Supervision Michelle Bowman… ‘Today’s changes preserve its resilience by ensuring that it is transparent, granular and risk-sensitive.’ The Fed said the two final rules are largely similar to the proposed measures from 2025. The changes come after a years-long push by the industry to overhaul the annual test…”

September 28 – Financial Times (Myles McCormick and Ella Lee): “The Federal Reserve’s watchdog has warned of ‘breakdowns and deficiencies’ in security at the US central bank after a departing official was suspected of removing sensitive information. The Fed’s Office of Inspector General flagged potential breaches by an unnamed employee in the international finance division, culminating in 279 ‘data loss prevention’ alerts in the 90 days before the person retired in July 2024. ‘This potential incident highlighted information security risks and control breakdowns and deficiencies that we believe require the board’s immediate attention,’ the watchdog wrote…”

U.S. Economic Bubble Watch

October 2 – Associated Press (Paul Wiseman): “U.S. employers added a disappointing 29,000 jobs and the unemployment rate ticked up last month… Hiring dropped from a revised 133,000 in August… Average hourly wages were up just 3% last month from a year earlier, the smallest year-over-year gain since May 2021… Federal, state and local governments cut 17,000 jobs last month. Professional and business services companies… trimmed 9,000 jobs. Healthcare companies created 17,000 jobs in September, but that was barely half the 33,000 they’ve added, on average, each month for the past year.”

September 30 – CNBC (Jeff Cox): “Private job creation picked up in September after a brief slowdown, providing further indication that the U.S. labor market has stabilized, according to an ADP report… Employment rose by 90,000 for the month, higher than the downwardly revised 36,000 in August and better than the… consensus estimate for 68,000… Service providers adding 59,000 positions while goods producers contributed 31,000. Base pay rose 3.2% from a year ago, while gross pay accelerated by 4.7%. ‘It’s a strong report,’ said ADP’s chief economist, Nela Richardson. ‘After a three-month slowdown, job creation rebounded and pay growth remained solid.’”

September 29 – Bloomberg (Julia Fanzeres): “US job openings fell in August to a five-month low, suggesting employers grew more cautious about expanding their workforces toward the end of the summer, while layoffs remained subdued. Available positions fell to 7.1 million from 7.3 million in July… The reading fell short of all estimates… The report also showed layoffs fell to the lowest level since March 2025. Hires edged up. The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, held at 1.9% — matching the lowest since 2020.”

October 1 – CBS News (Aimee Picchi): “Layoffs in the U.S. have fallen to a four-year low, while employers' hiring plans are up 3% this year… Employers have announced 573,195 job cuts through September this year, a nearly 40% decline from the first nine months of 2025, Challenger, Gray & Christmas said... On a monthly basis, layoffs dropped 20% in September to 43,281 from a year earlier, the lowest level in four years… ‘The labor market is somewhere between stable and reaccelerating,’ PNC Economics analysts said... ‘We’re seeing early signs that wage growth may be picking up again, which could make it more difficult for the Fed to reduce inflation without raising rates.’”

October 1 – Reuters (Lucia Mutikani): “New applications for US unemployment benefits drifted close to 57-year lows last week and layoffs decreased in September… Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 197,000 for the week ended September 26… Claims have held below the 200,000 level for three straight weeks and are near levels last seen in 1969.”

October 1 – Reuters (Lucia Mutikani): “US manufacturing activity was little changed in September, with prices for inputs surging amid strong demand, pointing to sustained inflation pressures. The Institute for Supply Management said… its manufacturing PMI dipped to 54.5 last month from 54.6 in August… The ISM survey’s new orders measure increased ⁠to 55.3 last month from 53.7 in August. Order backlogs also rose. Strong demand continued to strain supply chains. The survey’s supplier deliveries index eased to 59.0 from 59.3 in August… As a result, inflation at the factory gate increased last month. The survey’s gauge of prices paid for inputs jumped to 77.9 from 71.1 in August…”

October 1 – Bloomberg (Jeffrey Sparshott): “US manufacturing activity expanded at a slightly slower pace in September as factories balanced robust demand with resurgent costs and shipping delays… Manufacturers are also navigating rising costs and supply chain bottlenecks. A gauge of raw material prices rose to the highest since May and supplier delivery times continued to lengthen, albeit at a more moderate pace. ‘The most recent surge in price growth has renewed my concern of price volatility choking off demand in some of these sectors, underlining the impact of the ongoing war and renewed tariff threats,’ Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said…”

October 1 – Reuters (Lucia Mutikani): “US construction spending unexpectedly surged in August, boosted by outlays on nonresidential structures like offices and power plants, but the trend remained weak as higher mortgage rates weighed on homebuilding… Construction spending jumped 0.9% after an upwardly revised 0.1% dip in July… Construction spending dropped 1.7% on a ⁠year-over-year basis in August. Spending on private construction projects shot up 1.1% in August after falling 0.2% ⁠in July. Investment in private nonresidential structures increased 1.0% in August. Spending on power plants rose 0.9% and outlays on office projects soared 4.6%. Investment in residential projects surged 1.1% in August…”

September 29 – Reuters (Lucia Mutikani): “US single-family house prices increased in July… House prices rose 0.3% after being unchanged… Prices advanced 2.6% in the 12 months through July, after increasing 2.3% in the 12-month period through June… Monthly house prices rose in seven of the nine census regions in July, jumping 1.5% in the Middle Atlantic. They climbed 0.6% in the Pacific region and gained 0.4% in the West North Central and East North Central regions. But prices fell 0.8% in the Mountain region and eased 0.5% in the East South Central region.”

October 1 – Associated Press (Michelle Chapman): “The average long-term U.S. mortgage rate jumped this week to its highest level in nearly three years. The benchmark 30-year fixed-rate mortgage rose to 7.28% from 7.03% last week…, the biggest leap in several years. A year ago, the average rate was 6.34%. It is the sixth consecutive week that mortgage rates have increased. The average rate is now the highest it’s been since Nov. 22, 2023…”

September 29 – Associated Press (Matt Ott): “Americans’ confidence in the economy sank to the lowest level in more than a decade this month as prices remain elevated and wages stagnate amid the ongoing Iran war. The Conference Board said… its consumer confidence index tumbled 6.7 points to 81.9 in September, down from 88.6 in August. That’s the lowest reading in the board’s survey since April 2014… Respondents’ views of their present situation fell by 7.9 points to 109.3. Their short-term outlook also slid, falling 5.9 points to 63.6.”

September 29 – Wall Street Journal (Rachel Louise Ensign and Justin Lahart): “The ultrawealthy aren’t just pulling away from average Americans. Buoyed by a stock-market boom that has added trillions of dollars to their net worth, the extremely rich are even pulling away from other rich Americans. The top 0.1% wealthiest Americans have seen their total wealth more than double since the end of 2019, according to… the Federal Reserve. The year the pandemic started was when the ultrawealthy began to pull away from other rich groups… In dollar terms, the very richest Americans have gained a total of $14.5 trillion in wealth over that period, with most of that—about $10 trillion—coming from gains in stocks and mutual funds… The 0.1% now control about $28 trillion, or about 15% of the nation’s total wealth…”

China Watch

September 29 – Associated Press: “China… rolled out new measures to help boost its economy and sluggish property sector as pressures ramp up ahead of a year-end target for hitting the government’s economic growth goal. The measures, some of the bigger moves made this year by Chinese officials, include encouraging targeted bank lending and new subsidies for homebuyers’ mortgage interest payments. China’s central bank… said it will be lowering the interest rate for its ‘pledged supplementary lending’ facility, or PSL, by a quarter of a percentage point, bringing the one-year rate down to 1.5%.”

September 29 – Bloomberg: “China’s latest economic stimulus package appears designed to keep economic growth on target rather than deliver a broad revival… Government agencies unveiled mortgage subsidies and expanded central bank support for targeted sectors... The State Council… pledged a day earlier to introduce ‘a package of practical and effective additional policies’ to meet this year’s economic and social development goals. The moves amount to the biggest stimulus effort since September 2024 and make it more likely China will meet its annual growth target of 4.5%-5% after the pace slipped below that range last quarter.”

September 29 – Bloomberg: “China has started offering low-cost funding to help local government-affiliated firms settle unpaid bills…, expanding efforts to mend corporate balance sheets and remove one of the biggest bottlenecks for investment. The People’s Bank of China set up a new relending facility to provide cheap capital to commercial and policy banks, they said… The goal is to encourage the lenders to extend credit to mostly state-owned companies known as local government financing vehicles, or LGFVs, and other firms linked to local authorities…”

September 29 – Reuters (Kevin Yao and Ellen Zhang): “China’s factory activity expanded in September…, as easing weather disruptions allowed factories to resume operations and a global AI boom supported the industrial sector… The official manufacturing purchasing managers' index (PMI) rose to 50.1 from 49.8 in August…”

September 29 – Reuters (Liangping Gao and Ryan Woo): “China’s services activity expanded at its fastest pace in three months in September, as stronger new orders, including from overseas, lifted output, a private-sector survey showed… The RatingDog China General Services PMI rose to 51.6 in September from 51.4 in August…”

September 27 – CNBC (Anniek Bao): “China’s industrial profits grew at their weakest pace this year, expanding just 4.2% in August from a year earlier…, as manufacturers grapple with persistent weakness in consumer demand and a sustained rise in energy costs. The muted growth in August marked the fourth straight month of deceleration, after the 24.7% expansion in April, and the weakest performance since November 2025…”

September 28 – New York Times (Keith Bradsher): “Two leading electric carmakers in China said on Monday they would combine their battery charging subsidiaries, in the latest sign of consolidation in a severely crowded Chinese car industry… China’s car industry has immense overcapacity: enough car factories to build every car sold in China as well as all of the production in the United States and Europe… Car sales in China shrank 20.8% in the first eight months of this year from the same period in 2025. Carmakers have tried to compensate by increasingly shipping their cars overseas. China’s vehicle exports are expected to reach at least 10 million this year, up from one million cars in 2020.”

September 29 – Bloomberg: “Prices for the mainstay fuel at Chinese power plants rose for an 11th straight week as officials rush to boost domestic mining and major supplier Indonesia struggles with output. Spot thermal coal… rose 0.5% to a three-year high of 986 yuan ($147) a ton in the week through Monday. Prices have jumped 24% since mid-July in an unbroken run of gains. China mines and burns half the world’s coal, and the fuel still accounts for about 50% of the country’s power generation…”

Central Banker Watch

September 30 – Financial Times (Martin Arnold): “The Bank of England has warned the financial system is at risk of a ‘sharper correction’ than happened over the summer because of the growing reliance on debt to fund the boom in AI infrastructure. AI-related debt issuance totalled $450bn in the year to September, more than double all of last year, the BoE said in its quarterly update on financial stability…, citing estimates by Morgan Stanley. Global AI-related debt sales are expected to exceed the amount of bonds sold by the UK government this year, it added. ‘The rapid increase in artificial intelligence-related debt issuance broadens the exposure of capital markets to developments in AI,’ the BoE’s Financial Policy Committee said.”

September 30 – Bloomberg (Georgia Hall): “The Bank of England warned that elevated hedge fund leverage in gilts, alongside exposure to artificial intelligence assets and corporate debt, raise the risk of stress spilling across markets. That leaves markets more vulnerable to strains that ‘crystallise at the same time,’ the BOE noted in its quarterly financial stability record. That warning comes with the UK 10-year government bond yield already near levels last seen during the 2008 financial crisis.”

September 30 – Financial Times (Olaf Storbeck): “The European Central Bank must act pre-emptively to stop high energy prices pushing up the cost of broader goods and services and fuelling wages, one of its top policymakers said… Isabel Schnabel, a member of the ECB’s executive board, warned that rate-setters ‘cannot wait’ for so-called indirect and second-round effects from surging fuel prices to materialise before taking further action... ‘If policymakers waited for firms to visibly raise prices and wage negotiations to conclude, they would be acting too late,’ she said…”

October 1 – Bloomberg (Tom Rees and Irina Anghel): “Bank of England interest rate-setter Catherine Mann said a hike is needed to manage inflationary risks as financial conditions are still not tight enough. Mann argued that the UK central bank must act at some point after markets ramped up bets on officials increasing borrowing costs as many as four times by next summer... ‘At some point, we need to follow-through with bank rate rises – to maintain credibility, and to avoid policy expectations repricing downwards and inflation expectations repricing further upwards,’ Mann said… ‘A risk management strategy to monetary policy is appropriate.’”

September 29 – CNBC (Lim Hui Jie): “Australia’s central bank… raised policy rates to 4.6%, the highest level in 15 years… The hike of 25 bps to the cash rate was in line with expectations… The Reserve Bank of Australia has now raised rates four times this year by a total 100 bps as inflation remains sticky… ‘The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed,’ the central bank wrote, adding that AI-related demand was driving rapid price increases for technology-related goods.”

October 1 – Financial Times (A. Anantha Lakshmi): “The Philippine central bank has warned that a potential ‘Godzilla’ El Niño weather phenomenon threatens to fuel inflationary pressures in an economy already reeling from high oil prices… It could worsen droughts and hit agricultural production across the southern hemisphere. ‘There’s a potential that this could be a Godzilla El Niño that could affect the region, and the peak has yet to come,’ Zeno Ronald Abenoja, deputy governor of the Bangko Sentral ng Pilipinas, told the FT…”

Europe/UK Watch

September 29 – Politico (Giorgio Leali): “France accrued nearly €3.6 trillion in debt amounting to 119% of gross domestic product as of the end of June, national statistics agency Insee said… The figures were released as pessimism mounts over the future of the French economy, whose debt levels are starting to get closer to those of Italy and Greece — two of the eurozone’s most indebted countries — while growth stagnates. French Prime Minister Sébastien Lecornu said earlier this month that he plans to propose savings worth €54 billion in the 2027 budget…”

September 29 – Bloomberg (James Hirai, William Horobin, and Alice Gledhill): “France is planning to sell a record amount of bonds in 2027… The nation’s debt agency, Agence France Tresor, sees a total of €340 billion ($386bn) in issuance of medium- and long-term debt net of buybacks next year… That represents an increase of about 10% from the previous year. France has struggled to get a grip on runaway public finances as economic growth slows sharply and a fragmented parliament pushes back against austerity measures. The nation’s deficit is on track to swell to around 5.4% of economic output in 2026 instead of narrowing slightly from 5.1% in 2025 as the government initially targeted.”

October 1 – Wall Street Journal (Stacy Meichtry and Chelsey Dulaney): “The French government aims to cut tens of billions of euros in spending next year as it seeks to calm investor worries that have driven the country’s borrowing costs to their highest levels in decades. Whether the government manages to implement the planned cuts, however, is the question that has markets on edge. On Thursday, the government outlined a 2027 budget proposal that contains 43 billion euros in cuts and cost savings, equivalent to $49 billion, including steps to tighten spending on the country’s bloated pension system.”

September 30 – Bloomberg (Alessandra Migliaccio and Flavia Rotondi): “Italian Prime Minister Giorgia Meloni said she plans to ask the European Union for greater fiscal flexibility after the region’s top economies showed a surge in inflation caused by high energy prices. ‘We believe that in light of rising inflation caused by high energy prices across the globe, it is necessary to grant member states additional flexibility to support households and businesses,’ Meloni told newspaper Il Gazzettino… She said Italy had, in the past, already pointed out the need to take higher inflation into account when calculating European deficit limits.”

October 1 – Reuters (Indradip Ghosh): “Factory growth in the euro zone continued its upward march in September, hitting its fastest rate in more than four years, as resilient demand drove new orders and output to multi-year highs despite the ongoing Middle East conflict… S&P Global’s Eurozone Manufacturing Purchasing Managers' Index (PMI) rose for a third consecutive month to 52.9 in September from 52.7 in August, its highest level since May 2022…”

September 29 – Reuters (Suban Abdulla): “Unsecured lending to British households rose at the fastest annual pace since at least 1993 in August, Bank of England data showed… Net unsecured lending to consumers rose by £2.464 billion ($3.26bn) on the month, well above economists’ forecast of a £1.9 billion increase and the biggest rise since monthly records started in 1993.”

Japan Watch

October 2 – Reuters (Leika Kihara and Takahiko Wada): “Annual core inflation in Japan’s capital accelerated in September at the fastest pace in 10 months, highlighting mounting price pressures that bolster the case for further interest rate hikes… The core consumer price index… in Tokyo rose 2.7% in September from a year earlier…, accelerating from a 1.8% gain ⁠in August and exceeding a median market forecast for a 2.4% gain.”

September 27 – Bloomberg (Leika Kihara): “A key gauge of Japan’s service-sector inflation rose in August at the fastest annual pace in more than two years…, highlighting mounting price pressures that will keep the central bank on track for further interest rate hikes. The services producer price index, which tracks the prices that companies ⁠charge each other for services, rose 3.7% in August from a year ⁠earlier after a 3.6% gain in July…”

September 27 – Reuters (Leika Kihara): “Many Bank of Japan policymakers saw the need to focus on mounting inflation risks, with some calling for faster interest rate increases, minutes of their July meeting showed… ‘Markets appeared to be expecting the BOJ to raise interest rates with intervals of about six months. But the pace of rate hikes could be faster than such market expectations, given underlying inflation had approached 2% and the greater need to focus on upside price risks,’ one member was quoted as saying.”

October 1 – Reuters (Leika Kihara): “Japan is no longer experiencing deflation so does not need excessively loose monetary policy for the pursuit of a higher inflation rate, Economy Minister Minoru Kiuchi said… ‘Japan has emerged from an era where it needed the kind of reflationist policies taken under Abenomics,’ Kiuchi ⁠said… ‘What I mean to say is that Japan is no longer in a deflationary period, and therefore does not need excessively loose policy that pursues inflation,’ Kiuchi said.”

Emerging Markets Watch

September 30 – Bloomberg (Kelsey Butler): “Analysts are rushing to cut their year-end forecasts for the Mexican peso after it underperformed every other major currency over the past month. Societe Generale, Morgan Stanley and Banco Base have all revised their estimates for the peso lower as carry traders… flee the market. The peso weakened almost 6% this month, underperforming all currencies tracked by Bloomberg after hitting a two-year high early in September.”

Social, Political, Environmental, Cybersecurity Instability Watch

October 1 – Reuters (Cecile Mantovani and Denis Balibouse): “Swiss glaciers are shrinking rapidly after suffering one of their worst years of ice loss during a record-breaking European heatwave. Switzerland’s glaciers lost more than 5% of their ice in 2026, a report by the Swiss Glacier Monitoring Network (GLAMOS)… showed… The findings underscore the accelerating pace of glacier retreat as extreme melt years become routine. Over the past five years, Swiss glaciers have ⁠shed almost a fifth of their ice, the report showed, threatening future water supplies and raising questions about the long-term survival of Europe's ice fields.”