AFS Markets Blog: Midday 22/09/2026

• Meanwhile in markets, rumor has it that we might get a pre-October surprise: a US-Iran deal before the midterm elections. That would be a boon for the trade names after US Treasury Bessent: long long-end USTs, a stronger yen, and lower crude oil futures prices;

• According to the Japanese Kyodo news agency (a rather unusual outlet for breaking news about the Iran war) Tehran has informed the Trump administration that it will open the Strait of Hormuz within seven days after the US lifts its naval blockade. The blockade has decimated Iran’s crude exports and essential imports, further fueling inflation that was already sky-rocketing in high double-digit percentages;

• The timing of the Kyodo news trial balloon is no coincidence. President Trump is expected to sound out Gulf Cooperation Council leaders on the way forward with Iran at the UN General Assembly today. Recall that last week Trump, true to himself, teased that he was at a crossroads, suggesting either major military escalation or give talks another chance. Furthermore, Iran’s Foreign Minister Araghchi is also in New York to represent his nation at the UNGA. I would also point out that Trump has refrained from getting involved in the Yemen proxy war between Iran and Saudi Arabia. And that as far as US-Iran tit-for-tat strikes go, it has been rather quiet in recent weeks;

• So far, the market response to the rumors, while clear-cut, has been rather modest. UST yields are down several bps across the curve. Brent crude oil futures have dipped slightly below that magical level that is $100 a barrel. A week and a half ago we were at touching distance of the $110 handle. In any case, broad energy prices are lower. Dutch natural gas futures, which had scared our ECB-overlords by rising to 84.5 euros per MWh earlier in the month, are now barely hanging on the 70 euros handle. Which, it must be said, still represents nearly triple increase of natural gas futures prices;

• Equities have also taken heart from the deal rumors, with European markets edging higher and recording modest gains. S&P 500 futures are still flat though. USDJPY dipped almost a full point to 156.86 before reversing a third of the decline. In Eurozone govvie space Bund yields are flattish while OATs underperform. At 105bps, the 10y Bund-OAT spread is at its highest level since the Eurozone crisis. For obvious reasons: Presidential elections and another fiscal budget deadlock. Spanish and Portuguese bonds are resilient but BTPs are feeling the heat from French political risk. At 90bps Lo Spread is close to its highest level in six months. Remember that Italy will hold legislative elections in 2027 – though likely late(r) in the year;

• Looking ahead, with the UNGA, geopolitical headlines will likely rule the roost today. Besides, we have a smattering of Fed-speakers. And speaking of the Fed, OIS and futures have priced in rate hike cycle of more than a hundred basis points. With the 2y10y spread at 20bps and that spread narrowing by roughly half the Fed rate hike increment, expect yield curve inversion talk and recession fears to rear their ugly head in the final months of the year. Unless we do get that October surprise.

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