AFS Markets Blog: Midday 24/09/2026

• Meanwhile in markets, central banks across the globe leaning against the wind to slow an increasingly buoyant economy obviously wasn’t on my bingo card for 2026. And if it was Tehran’s strategic aim to get the US to back down by tottering the global economy by starving it of energy, that ploy has clearly failed;

• Business survey data left and right, such as the PMIs, point to a synchronized economic upswing. Perhaps the rest of the economy is finally benefitting from the investment splurge in AI. Notice how the economy is powering through despite elevated energy prices and doom stories left and right of shortages of diesel amongst the other stuff that we actually burn for energy. In this regard, I think the best thing the Iranians can do is to whip up the bond market by keeping energy prices as high as possible. But I don’t see how that will change Washington’s calculus or the calculus of the nations that are collateral damage to the war. I am thinking of the Gulf energy exporters and us energy importers here in Europe, for example. Are politicians going for austerity because of higher interest and then blame it all on the Iran war? And then what?

• Headlines this morning quoting Iranian officials as saying that Tehran could expand the conflict beyond the Gulf are telling. After Hormuz and the Red Sea, the official marked the Indian ocean as the next target. At the same time, I read another story on Qatar being able to get a significant amount of LNG through Hormuz using subterfuge and – likely – US help. How many tankers successfully make the transit through the Strait remains lost in the fog of war, unfortunately. But if Iran’s threat to expand its campaign of harassing commercial shipping and reports of US officials telling their Iranian counterparts at the UN that more and more ships are getting through are any guide, I am strongly inclined to believe the trend for transits is upward sloping;

• Still, crude oil futures prices are notably higher this morning, with Brent at $106 a barrel up close ten percent from this week’s low as the UN meetings this week did not result in US-Iran deal. Quelle surprise. Equally notable is that Dutch natgas futures have barely budged this morning;

• Higher crude futures prices have dragged bond yields even higher. At 5.14 percent, the US 10-year Treasury yield is at its highest level since 2007 or thereabout. The 30y at 3.86 is near/at its highest level since 2004 no less. For the week UST yields are up 15-24bps across a bear-flattening curve. Bunds are lagging with a 3-9bps increase this week. OATs are underperforming yet again, with the 10y Bund spread at a post-Eurozone crisis high of 112bp;

• The sell-off in OATs has shaken the allies of French far left presidential candidate Mélenchon, who might make it to the second round in next year’s elections according to the pollsters. Remember that Mélenchon has said on plenty of occasions that France should simply default on a portion of its debt. Mélenchon’s allies are quite frankly telling him to stop doing that s• • •  or risk an even bigger sell-off according to Politico;

• The ongoing bond market sell-off is classical in the sense that the sell-off is driven by hawkish central bank repricing. I am loathe to blame it all on fiscal recklessness – we’ve known for years about the terrible state of budgets and debt levels of France, the US, the Japan – or Germany (budget only) for that matter – are. There is nothing new here. I judge the central bank repricing to be story of tighter policy required to slow the economy first, and an energy/inflation story second. A case in point is German economic institutes doubling their GDP growth forecast for 2026 to 1.3% despite you know what;

• With yield curves flattening aggressively and in predictable fashion, I detect an urge to catch that falling knife that are long bonds. I am not saying that the sell-off has run its course – I absolutely have no clue. I am only saying that with the rise in long-end yields driven purely by higher real yields, one wonders how much tightening this economy can take before things inevitably head south further down the road;

• More importantly, do we really need a Fed rate hike cycle of 125bps – which is now priced in – to get inflation down and slow the economy? The Swiss National Bank begged to differ at its interest rate decision this morning. Bucking the global central bank rate hike trend, the Swiss appear to be comfortably at hold for the foreseeable future;

• Concluding with some market commentary, equities are feeling the heat from higher (real) yields, with European stocks down around half a percent while S&P 500 futures are down a chunkier 1.5%. In FX space the Swiss franc weakened notably on the lack of hawkishness in the SNB decision. The broad dollar has risen a smidgen above yesterday’s highs, which has pushed EURUSD down into the 1.13 handle while USDJPY is high up in the 158 handle. For the record, USDJPY has erased half its intervention declines;

• Looking ahead, we will round of the week today and tomorrow with the usual smattering of major central bank speakers. Who, it must be emphasized, have adopted a laissez faire attitude to the bond market sell-off.

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