AFS Markets Blog: Morning 11/09/2026

• Meanwhile in markets, everything is going to be just fine because Trump Always Chickens Out, right? …Right???

• The TACO quips have vanished from trading floors lately, as neither the US nor Iran looks willing to blink first. Both sides seem convinced they can wait out the other, betting that the other has a lower tolerance for economic pain. The optimists in the US administration – namely President Trump – now insist that this six-week special military excursion (in its seventh month) will wrap up nicely just after the November midterms. However, the likes of Vice President JD Vance and Secretary of State Marco Rubio have reportedly warned the President that Tehran could hold out until the end of his term in 2029;

• Uncertain of the timeline, markets are feeling the pain. Energy prices are surging higher, sending bonds deeper into the red. And while equities have been spared the worst of the carnage, they certainly haven't been immune;

• So, what did the headline numbers hit overnight? Brent crude peaked just under $110 before easing slightly to $106.70 at pixel time – putting it up over 10 percent for the week. The 10-year US Treasury yield stands at 4.95 percent, with the 5.00 percent psychological level squarely in sight for the first time since 2023. Across the curve, UST yields are up 12-20bps on a weekly basis, moving in a bear-flattening pattern;

• In our neck of the woods, Bund yields closed the last session up 7-29bps on a weekly basis, moving in a bear-flattening pattern. It isn't just oil stoking inflation fears – natural gas is an even bigger worry. Dutch TTF is hovering at €81/MWh, recording a 14 percent weekly gain. Periphery bonds are feeling the pain too, with spreads over Bunds widening across the board this week. Bloomberg generic pricing puts the French OAT-Bund spread at 94bps – a post-Eurozone crisis high – while the Italian BTP-Bund spread stands at 88bps – its highest level since March. The widening in Portuguese and Spanish spreads is slightly more contained, though both have still hit their highest levels since early July;

• Turning to central banks, the presser following yesterday's 25bps ECB hike was a total non-event. However, rate expectations have moved hard on the back of the energy rally. ESTR forwards now point to a terminal rate of roughly 3.25 percent – fully pricing in three more 25bps hikes in the next twelve months. An ECB sources story suggests an October move is an option, but our expectation remains that the next hike will be in December. Across the Atlantic, fed funds futures are pricing in 18bps of tightening for next week's FOMC meeting – with the afternoon’s US CPI release the decider. A hot print almost guarantees a hike, but if core inflation continues to soften the FOMC doves will have an opening to push for a hold;

• Inflation expectations are hammering bonds, but we can't ignore the role of the fiscal sinning of most Western governments. Structural deficits have sent long-end yields to levels last seen when yours truly was still in primary school. Real yields – nominal yields stripped of inflation expectations – are at decade-plus highs. The German 10-year real yield is now up 50bps since early June, while the US 10-year real yield is up 40bps. With little political appetite to tackle deficits, the pain is only going to mount;

• Shifting to some broader market commentary, Asian equities are down across the board this morning, with the Nikkei losing two percent. S&P 500 futures are up this morning, but are only on pace to erase half of yesterday’s half a percent loss. In FX, the broad dollar is holding near yesterday’s close – sitting on marginal losses against major currencies on a weekly basis;

• Looking ahead, all eyes will be on the US August CPI release this afternoon, with little else on tap besides some ECB-speak. Next week brings a central bank decision bonanza, with the magnum opus being the highly contested FOMC decision on Wednesday evening.

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