August 29, 2026

The risks are rising that long rates six months from now could be a lot lower than where they are today. Long rates are high today because of inflation and fiscal problems. But these forces could end up being dominated in early 2027 by what happens to AI, see the first chart below. If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower. If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically. Over the next six months, the market will make up its mind about which AI scenario is playing out. The bottom line is that financial markets are driven by narratives. The narrative in rates today is all about inflation and fiscal problems. But the narrative going into 2027 is going to be all about either the success or failure of AI. And in both scenarios, long rates are going to be lower.

August 28, 2026

For 30 years, the 10-year Treasury yield fell almost entirely on the handful of days around Fed meetings, and did essentially nothing the rest of the time, see chart below. That stopped in 2022 after the Fed began to raise interest rates. The 10-year has since risen roughly four percentage points, but almost none of that came on Fed days. The reason is that each hike was largely priced by the time the Committee met, so the FOMC announcement and press conference carried little news for the long end, and the move higher instead came from higher-than-expected CPI prints, stronger payrolls, increasing Treasury supply and a rising term premium, none of which sit on the FOMC calendar. This raises the question of whether FOMC meetings are still the most important drivers of long rates. With Fed Chair Kevin Warsh having dropped forward guidance, the most likely scenario is that rates become more market-driven and move more outside of FOMC meetings. In other words, this looks less like a post-hiking-cycle anomaly and more like the new regime. The bottom line is that we should not expect forward guidance from Warsh today at the Jackson Hole Economic Symposium, but anything he says about framework and the economy, in particular where he sees inflation, unemployment and the neutral rate, could move the long end anyway.

August 27, 2026

Today's Spark comes with a welcome. Huw van Steenis has joined Apollo in London. He brings decades of experience across European banking and markets, and will be writing here on Europe, the UK and the ongoing evolution of private markets. We start by looking at how the UK's corporate funding model has changed, see charts below. Twenty years ago, banks provided 57% of UK corporate debt. Today, investors are the largest source, at 56%. All the real growth has come from capital markets. Adjusted for inflation, bank lending to UK companies has fallen 10% since 2005, while market-based finance has grown around 50%. The menu is also much broader. Twenty years ago, market finance meant bonds. Today, public bonds are 40% of UK corporate debt, with private bonds, direct and broadly syndicated loans, and other non-bank lending adding a further 16%. Most of it is investment grade. Bank lending has gone global. Overseas banks have lifted their share of UK corporate bank lending from 17% before the 2008 financial crisis to 27% today. The bottom line is that UK companies can now tap a deeper and more diverse pool of capital than at any point in two decades. More sources of funding mean more resilience, better access and less dependence on any single part of the financial system.