15/09/2026
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Government intervention fails to stop yields rising
Bombastic statements from US Treasury Secretary Scott Bessent and an increase in the level of Treasury buybacks wasn’t enough to reverse swelling yields on government bonds last week.
Earlier in the week, Bessent dared currency traders to bet against US Treasuries regarding the so-called yen 'carry trade’ (where Japanese investors borrow yen cheaply to buy higher-yielding assets such as US Treasuries). At the time he declared “I am the house now.”
This was followed by an increased level of US Treasury buybacks, attempting to push down yields later in the week (bond prices and yields move in opposite directions).
However, neither intervention was enough to stem the tide. Yields continued to rise in the US and elsewhere as the week progressed. On Friday, yields on 10-year US Treasuries peaked at over 4.9% - just a whisper below the psychological 5% threshold. The last time yields were this high was in 2007.
Market bets on interest rate rise
On Friday, the US Bureau of Labor Statistics revealed CPI inflation held steady at 3.4% in August. The figures suggest the inflationary pressures from the Iran conflict are feeding through to consumer prices.
Given that the price of a barrel of Brent oil jumped from around $90 at the end of August to above $108 over the weekend, there is a good chance the inflationary effects will continue to be felt when September’s CPI numbers are released next month.
The week also proved a difficult one for equities. The S&P 500 fell every day except Friday, where it staged a small recovery – though not enough to lift the index into positive territory over the week.
Carlota Estragues Lopez, Equity Strategist at St. James's Place, commented: “In the initial days of the Iran conflict, the S&P 500 was very clearly negatively correlated with oil prices, meaning it moved in the opposite direction. That relationship weakened over the summer as oil prices retreated and hopes of peace talks improved sentiment. But it has become more pronounced again as the conflict has re-escalated. Markets appear increasingly concerned about the longer-term impact of higher energy prices on inflation and interest rates. However, last week's weakness also had a significant AI-related component that was independent of oil.”
The Federal Reserve (Fed) is due to meet to discuss interest rates this week. The market is now largely pricing in a 0.25% increase. Fed Chair Kevin Warsh has so far resisted giving future guidance, but markets seem to expect at least one further rate rise before year-end.
With the US midterm elections in November rapidly approaching, incumbent Republicans in both Houses will be hoping for a de-escalation of the situation with Iran, allowing oil prices to settle sooner than later.
ECB goes early
It should be noted that US government bonds weren’t alone in feeling the heat. Yields across most developed markets continued to rise.
A major worry in Europe is the rising price of natural gas – which has reached levels not seen since 2022.
The European Central Bank (ECB) confirmed what many had been expecting when they raised interest rates by 0.25% across the eurozone last week. While the decision was already widely predicted, the hawkish tone of the commentary released alongside it was notable.
ECB chair Christine Lagarde described it as a ‘no-brainer’, and all members voting for a rise. Markets are now pricing in another rate rise in October.
AI helps UK GDP
While the UK has also been grappling with increasingly expensive national debt, there was also some comfort in better-than-expected GDP figures released in the second half of the week.
According to the Office for National Statistics (ONS), the UK economy grew by 0.4% in July, surpassing the 0% widely expected.
The information and communications sector was among the areas contributing notably to the growth. This was driven mainly by expansion in computer programming, consultancy and related activities. The ONS highlighted: “Many of the businesses reporting the largest turnover in July 2026 are involved in activities related to artificial intelligence and cloud computing. However, because of the nature of our data collection, it is difficult for us to quantify the exact impact of these types of activities on turnover.”
For the Bank of England, a healthy economy combined with the ongoing inflation pressures increases the probability of an increase to interest rates sooner rather than later.
For Chancellor John Healey, the better economic output will be encouraging news going into his inaugural Budget. An improving, healthy economy should mean one able to generate more taxes – something desperately needed in the face of rising borrowing costs.
WeekWatch - 14/09/2026
