AFS Markets Blog: Morning 19/08/2026

• Meanwhile in markets, bonds are still puking following the recent costly 30-year Bund and UST auctions that produced the highest yield in a decade or so. To add insult to injury, the nascent recovery in AI and adjacent stocks is in reverse;

• While UST yields are modestly lower in the Asian session, in the greater scheme of things, the long end certainly doesn’t look pretty. With term premia at their highest level in more than a decade, 10y and 30y yields are only marginally below their recent highs. The picture is equally dire for Bunds. With Bunds, it’s the same story with nominal and real yields at their highest level in a decade or more. More importantly, the sell-off in Bunds and USTs require no news and not even higher oil prices. Put differently, the path of the least resistance is higher yields and a steeper curve;

• Asian equities are lower this morning, with the Nikkei down three percent on the back of a stronger (read: less weak) yen, with the ubiquitous USDJPY cross trading low in the 159 handle. What is helping the yen is interest rate differentials turning to less unfavorable levels. Over the past four weeks, Japan 2-year Government bond yields have risen 23bps, thus pricing in a more aggressive Bank of Japan Rate hike path. UST equivalent yields are down 5bps on a 4-week basis;

• The Korean Kospi is down five percent this morning, a completely normal daily move for that index. AI stocks have started to falter, with the majority of the twenty stocks on our AI screener now down over the past five days. Worth pointing out is the overnight Wall Street Journal story on OpenAI’s recent earnings release. The article mentions a 18% increase in revenue to $6.7 billion while during the same period rival Antrophic’s revenue doubled to $11.6 billion. What’s more, losses increased as OpenAIs promises of breakneck revenue growth fail to materialize;

• Brent crude oil futures are flat this morning, with the most active contract trading at $91.6 per barrel, where we face some resistance provided by the 100-dma. Oil is benefitting from Hormuz ship transits falling further from what was already a trickle. According to wire reports, two Chinese supertankers, of which one was loaded with Iranian crude, had to turn back following a failed attempt to exit the Gulf. Since at least one of the two ships took the US administered route along the Omani coast, one wonders if the US naval blockade forced the U-turn;

• ESTRs have repriced hawkishly this week, with the 1y forward up 10bps to 2.81. Meaning we’re inching towards pricing in four quarter point ECB hikes in total (when the June hike is included);

• Looking ahead, we have the FOMC minutes of the July meeting on tap and that’s about it. The minutes might tell us if the three hawkish dissenters carry broader support on the committee.

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