AFS Markets Blog: Midday 15/09/2026

• Meanwhile in markets, has the house gotten tired of winning? Treasury Secretary Scott Bessent can mock us Bloomberg Terminal bros all he wants, but the trade that carries his name – long yen, long 30y UST, short crude – is proving far from profitable at the moment;

• After rising 5bps today, the 30-year Treasury yield sits just a hair below 5.40 percent – its highest level since 2007. The 10-year yield cut cleanly through the 5.00 percent handle this morning, trading at 5.03 percent at pixel time. Despite Bessent’s claims that the US boasts the world’s best-performing sovereign bond market, year-to-date metrics tell a different story. US Treasuries are lagging behind Bunds, with UST yields surging 55–120bps in a bear-flattener versus 44–115bps for German debt;

• Bessent blames the losses in USTs on rising energy prices, arguing that the temporary supply shock will eventually die down and get priced out. But that misses the real driver of losses at the long end: structural government budget deficits. Real yields – which exclude inflation expectations – have surged across the globe in recent months. The 10-year US real yield breached the 2.50 percent mark today – rising roughly 75bps year-to-date. That rise explains most of the 86bps increase in the 10-year nominal UST yield. The rise is no surprise given that the US headline deficit currently stands at 6 percent of GDP – historically high levels for an economy operating near full employment. And there is no political appetite – on either side of the aisle – to bring this down;

• Shifting on to USDJPY, the cross is moving in and out of the 155 handle – trading 200 pips above its September lows. In this case, I’d say blame energy-driven inflation. Surging inflation fears have pushed fed funds futures to price in nearly four 25bps hikes over the coming twelve months. That is now the same number of hikes priced into BOJ dated TONAR swaps over the coming twelve months. So, while Bessent may boast that he has gotten the BOJ to speed up its policy normalization, the interest rate differential is now expected to remain broadly unchanged – doing little to relieve pressure on the yen;

• Some minor good news in energy, we’re off yesterday’s highs – but not by much. Brent crude is trading at $108.35 at pixel time, after nearly touching $110 yesterday and closing at $106.40. Meanwhile, European natural gas prices are down a percent this morning. Over in the Middle East, reports throughout the morning suggest an escalating back-and-forth of strikes between Saudi Arabia and the Houthis. Last week Houthi strikes disabled Saudi Arabia’s East-West oil pipeline, which allowed the kingdom to circumvent the Strait of Hormuz;

• Shifting to equities, the Stoxx 50 is down just under a percent this morning. Having lost five percent from its peak, correction territory is slowly coming into view. Over in the US, S&P 500 futures are down half a percent – with the decline from its all-time high more contained at three percent. The AI-driven equity sell-off following the weekend's call by major AI lab CEOs to slow and regulate model development remains underwhelming. Our custom AI index – tracking major hyperscalers and chipmakers – is back off yesterday’s lows, keeping losses limited to two percent on a weekly basis. Some individual names, especially in semiconductors, are down close to 10 percent over the past week. Nevertheless, those losses barely dent their YTD gains;

• In the corporate bond market, the fear of an AI slowdown is notably absent with the dozen or so AI industry-related bonds we are tracking. Over the past week, G-spreads across the sector have largely tightened in line with the broader credit market – with select issuers like SpaceX and Broadcom outperforming. While a handful of AI-related names slightly underperformed, the move remains far from a sell-off;

• Moving to some broader market commentary, Bund yields are up 1–6bps this morning in a bear-flattening pattern. ECB-dated ESTR forwards are currently pricing in 18bps of hikes for the October meeting. Year-end pricing is even starting to lean towards pricing in a second 25bps hike in December – with 39bps of hikes priced in by then. Over in FX, the broad dollar is up roughly a quarter percent this session;

• Looking ahead, the afternoon calendar remains light, except for a couple of speaking engagements by Treasury Secretary Scott Bessent and several ECB officials. Tomorrow promises a much busier slate headlined by the all-important FOMC rate decision – with a 25bps rate hike fully priced into fed fund futures. Besides that, there is the release of US retail sales data for August and some more ECB-speak to look forward to.

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