Crude (WTI) surged another $6.82 this week to $89.31 – the high back to May, while boosting y-t-d gains to 55%. At this point, only a miracle would bring this war to a timely resolution. Iran remains defiant. Indeed, they directed the Houthis to activate in the Red Sea, specifically targeting Saudi trade – and establishing a critical second chokepoint at the Bab el-Mandeb Strait. The Iranians show no sign of retreating from their demand to control the Strait of Hormuz.
“Trump Seethes as Iran War Spirals Anew With No End in Sight.” The President is back to threatening bridges and power plants. Iran endangers U.S. troops and regional infrastructure, such as power and desalination plants. Trump: “I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it.”
Markets increasingly question whether TACO is still on the menu. Instead, talk is growing louder about the war consuming the Trump presidency. The Iranians are notorious for patience and perseverance. President Trump faces a midterm election clock signaling just over three months.
The new Fed Chair faces a rapidly ticking inflation clock – with increasingly unstable bond markets. The rates market ended the week pricing 38% probability of a hike at next week’s FOMC meeting, with more than 100% (110%) for a 25 bps rate increase by the September 16th meeting. With near-term prospects for war resolution appearing bleak, the hawkish committee contingent will push back against doing nothing until mid-September.
July 24 – Bloomberg (Jeffrey B. Sparshott): “US business activity expanded at the fastest pace in eight months as strong domestic demand for services offset cooling factory production, growing supply chain delays and rising costs. The S&P Global flash composite purchasing managers index rose to 53.6 in July… Activity at service providers climbed to 53.6, the highest since November 2025… “July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said…”
I remember market “government support” chatter in 1990. The S&P500 had sunk 17% from July 16 to August 23 of that year. The banking system was in trouble and the economy was vulnerable. Saddam Hussein had invaded Kuwait that August, with President Bush immediately moving to build his coalition to confront the Iraqi invaders.
During the 1994 bond crisis, the government-sponsored enterprises provided powerful liquidity support. The next year, President Clinton called on the Exchange Stabilization Fund to finance $20 billion of support during the Mexico crisis. The IMF later joined for a $58bn bailout package. The term “plunge protection team” (PPT) surfaced during the 1997 Asian crisis and took hold during the 1998 LTCM bailout period. The “PPT” was an important part of the market narrative after the bursting of the late-nineties tech Bubble. It became accepted market dogma that “Washington would never tolerate a bursting housing Bubble.” From 2008 to the pandemic, “government support” inflated to previously unimaginable extremes.
Maybe President Trump is actually considering a “massive attack,” which would surely trigger a major Iranian response – jeopardizing the region’s energy infrastructure, desalination plants, oil tankers, and such. A spike to $150 and even $200 crude would be possible, unleashing a global inflation scare and collapsing bond prices. A global market panic and crash would be a distinct possibility.
The VIX (equities volatility) Index was down slightly this week to 18.58. Considering the possibility of Middle East/global mayhem, a 30 to 40 VIX level would be more reasonable. The MOVE (bond volatility) Index rose six this week to 76.8 – a somewhat nonsensical level considering the backdrop (5-yr avg. 99). There was some notable movement this week in corporate Credit indicators. High yield CDS gained six to a two-month high of 316 bps (vs. 5yr avg. 378/March spike to 406). High yield spreads (to Treasuries) jumped 12 to a one-month high of 280 bps (vs. 5yr avg. 343/March spike to 335).
Markets seemingly trade with the view that Secretary Bessent and Chair Warsh have the old “PPT” locked and loaded.
This is such an extraordinary backdrop. We’re at war, and there’s nothing our adversary would rather do than trigger market and economic mayhem. Markets have been quite comfortable with the notion of a Trump war “put.” The White House surely views faltering markets as a threat to national security (along with political “security”). And with only about 100 days to go, faith in the administration’s capacity to sustain strong markets through the midterms has yet to waver. What’s more, there is a general view that the Treasury and Fed won’t tolerate bond or repo market instability – especially for such an over-indebted and levered world during acute geopolitical uncertainty.
It’s not uncommon late in major Bubble markets for perceptions to take hold that market manipulation and various shenanigans ensure ongoing market gains. The powerful players and institutions essentially have the market “cornered” or “rigged.” In 1929, it was the “stock pool” operators and investment trusts that were to keep prices levitated. Such Bubble schemes work until they don’t.
Tesla sank 14.5% Thursday and was down 17.8% this week – the largest weekly decline since the week ended December 23, 2022 (down 18.0%). I’ve long viewed elements of Tesla consistent with a “rigged” “cult stock.” With much of the float closely held and a CEO keen to hype future innovations, it’s a stock ripe for fun and games. Myriad issues and crazy valuation metrics have repeatedly enticed outsized short positions, ensuring bloody short squeezes and intoxicating trading profits for the bulls. It works wonderfully until it doesn’t – and for some reason it suddenly didn’t work this week.
It would be easy to dismiss Tesla’s dive if it weren’t for other market warnings. The MAG7 Index sank another 5.7% this week – with Meta Platforms down 7.9%, Alphabet/Google 7.8%, Amazon 6.1%, and Microsoft 3.1%. MAG7 was down 8.6% over the past seven sessions. Tesla ended the week about 30% below highs from May 14th. Microsoft is down 18% from June 1st highs, with Google 20% below May 13th highs.
Oracle was hammered another 9.0% this week, having now lost more than half its value (53%) since June 1st. Alarmingly, Oracle bond (5.7%, ’36) yields surged 46 bps this week to 6.98%, with yields now up a blistering 83 bps in 14 sessions. Oracle CDS jumped 17 to a record 216 bps, after beginning 2026 at 54 bps.
Elsewhere, CoreWeave (8.5%, ’32) yields surged 48 bps this week to a record 10.35% – with yields up 112 bps in 11 sessions.
July 22 – Reuters (Patturaja Murugaboopathy and Gaurav Dogra): “U.S. hyperscalers are starting to show returns on their artificial intelligence investments, but the rising cost of the buildout is taking a bite out of their free cash flow, and investors are noticing. At their current trajectory, the so-called ‘hyperscalers’ — Microsoft, Alphabet, Amazon, Meta Platforms and Oracle — are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, according to a Reuters analysis of LSEG consensus estimates. The data shows the companies will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, but capex is expected to rise by roughly $534 billion, equivalent to about $1.57 of additional investment for every $1 of additional cash flow.”
July 23 – Bloomberg (Tasos Vossos): “A 100-year bond that Alphabet Inc. issued earlier this year in the sterling market as it gorged on debt around the world has dropped below 90 pence on the pound for the first time. The £1 billion ($1.34bn) bond due in 2126 that the tech giant sold in February at just under par was indicated at 89.978 pence on Thursday…”
Amazon’s 5.3% 2036 bond has struggled mightily in its initial 13 trading sessions. Yields surged 27 bps this week to 5.58%, with the bond now trading at 97.9. Microsoft (3.45%, ’36) yields spiked 27 bps this week to 5.27% – after trading at 4.36% on February 27th (pre-war). Meta Platforms’ long-term yields (6.3%, ’56) surged 31 bps this week to 6.92%. If confidence in big tech bonds doesn’t return in a hurry, this spectacular, historic, and uber manic AI arms race party will face a premature ending (with dreadful hangover).
July 24 – Bloomberg (Michael Gambale, Davide Barbuscia and Caleb Mutua): “BlackRock Inc. has seen weaker-than-usual demand for a corporate bond sale tied to a Meta Platforms Inc. data center project in Texas, as investors grapple with concerns about excessive AI infrastructure spending. Final demand reached $20 billion by late Friday afternoon, or about 1.6 times the amount of bonds for sale… The $12.3 billion bond is expected to be priced on Monday, the people said.”
“At long last, we have peace in the Middle East, and it’s a very simple expression, peace in the Middle East… We’ve heard it for many years, but nobody thought it could ever get there. And now we’re there.” President Donald Trump, October 13, 2025, after the signing of the Gaza ceasefire declaration in Sharm el-Sheikh, Egypt.
A sampling of Friday headlines:
“The U.S. and Iran Are Stuck in a Cycle of Military Escalation.” “Iran Targets American Strongholds Around the Gulf While US Hits More Iranian Military Sites.” “Saudi Arabia Strikes the Port City of Hodeida in Yemen.” “Houthis Claim Missile Attack on Southern Saudi Arabia.” “Another Saudi Tanker Attacked in the Red Sea.” “Bab El-Mandeb Blockage May Add ‘Unprecedented’ Supply Constraints, Sources Say.” “Ship Insurers Restrict War Coverage for Saudi Arabian Cargoes in Red Sea.” “Kuwait and Bahrain Launch First Direct Attack on Iran Amid Escalating War.” “Settlers Rampage Across West Bank Amid Burial of Civil Security Guard Shot by Palestinian.” “Israel Pours Troops into West Bank After Deadly Shooting.” “Palestinian Authority Condemns Israeli Settlement ‘Terrorism’ After West Bank Clashes.” “Israel Steps Up Deadly Strikes and Expands Physical Barrier in Gaza Despite Truce”
This would be a horrible time for Middle East conflict to spiral out of control. Unprecedented global debt and speculative leverage ensure acute fragilities. Global bond yields have begun to break to the upside. Unless there’s war resolution and a return of crude flows through the Strait of Hormuz and Bab El-Mandeb Strait, preparation for global de-risking/deleveraging dynamics is of the essence.
“The Bloomberg Global Treasury Index — which tracks government bonds of investment-grade countries — has surged to 3.68%, surpassing a peak from three years ago to reach the highest since the global financial crisis in 2008.” (Bloomberg’s Greg Ritchie and Cameron Fozi)
While things stabilized somewhat Friday, Thursday trading was alarming. 30-year Treasury yields jumped to 5.18%, matching the May 19th closing high, which was the highest close since July 11, 2007. Ten-year Treasury yields jumped to a Thursday intraday high of 4.71% – the high back to January 2025 – and within eight bps of highs since the October 2023 yield spike. Benchmark MBS yields traded to a 13-month high of 5.73% in Thursday trading.
“Bund Yields Hit 15-year High as $100 Oil Fans Inflation Concerns.”
“Japan 5-Year Yield Rises to 2.045%, Highest Since 2000 Debut.” “Japan 40-Year Yield Rises 10bp to 4.01%.” Forty-year JGB yields surged 14 bps this week to 4.01%, within two bps of the July 9th record high.
French yields traded to 4.04% Thursday, with the first close above 4% since November 2008. UK gilt yields traded to 5.12%, within five bps of the May 15th closing high (highest yield since June 2008) and the “longest period of daily closes above 5% in almost two decades” (Bloomberg).
Australian yields jumped 19 bps this week to 5.09%, within three bps of the high back to July 2011. New Zealand yields rose 14 bps to 4.79% – within nine bps of the high since August 2011. South Korean yields rose eight bps to 4.42%, the high since the October 2022 global bond tumult. Curiously, Singapore yields spiked 23 bps to a 13-month high of 2.44%.
There were few places to hide this week. Some key EM bond markets were slammed. Yields in Turkey surged 68 bps this week to 32.60%. South African yields jumped 20 bps to 8.87%. Yields were up 20 bps in Poland (5.76%) and 16 bps in Hungary (5.63%). Czech yields traded to 5.05% Thursday, the high back to March 2023 – ending the week up 15 bps to 5.01%. Brazilian yields traded above 15% in Thursday trading for the first time in 15 months, ending the week with yields up 11 bps to 14.83%. Mexico yields traded up to 9.34% before ending the week 14 bps higher at 9.26%.
EM dollar-denominated yields were also under notable pressure. Argentine yields surged 38 bps this week to 9.11%. Philippines yields were 23 bps higher at 5.66%, closing the week at the highest yield since November 2023. Indonesia yields jumped 19 bps to 5.70%, also the high back to November 2023. Qatar saw yields jump16 bps to 4.96% – a new multi-decade high. Mexico’s dollar yields rose 13 bps to 6.50%, trading this week to a 14-month high, while Brazil’s yields rose to 6.36% Thursday, within six bps of a two-year closing high.
In EM currencies this week, the South African rand declined 1.8%, the Argentine peso 1.2%, and the Chilean peso 1.1%.
July 23 – Bloomberg (Greg Ritchie): “Hedge funds’ most popular trade in the US bond market is showing signs of maxing out. Known as the basis trade, the strategy involves wagering on the small price difference between Treasury bond futures and the underlying securities, using heaps of borrowed cash to scale up the bet. But now those gaps are narrowing, and the trade is losing steam. Early evidence of a pullback can be seen in reduced activity in some of the repo funding markets commonly used by hedge funds to obtain leverage, combined with a decline in their short futures positions. Morgan Stanley estimates the amount of money locked up in leveraged investors’ basis trades has declined by more than $200 billion to $1 trillion in recent months.”
It’s interesting to read analysis that suggests hedge funds have reduced basis trade leverage. And it’s worth noting that money market fund assets have dropped $82 billion over the past two weeks – a contraction indicative of the unwind of “repo” financed leverage.
There’s a solid case that a deleveraging cycle has commenced. I won’t yet make a big deal out of a smaller hedge fund basis trade, not after the huge growth in Treasury holdings at the banks and Wall Street firms. Still, there has been meaningful deleveraging in bitcoin and crypto more generally. The pullback in some big technology stocks is likely associated with initial deleveraging in individual stocks, sector ETFs, and in options/derivatives. And some recent spikes in big tech bond yields suggest incipient de-risking/deleveraging.
July 21 – Bloomberg (Carter Johnson and Vinícius Andrade): “One of the most enduring foreign-exchange bets is off to its best run in decades as surprisingly muted volatility across asset classes has investors piling into carry trades. The strategy, which involves borrowing in low-yielding currencies to invest where returns are higher, has proven a winner in 2026 as the global economy remains unexpectedly resilient in the face of the oil shock spurred by the Iran war. That backdrop is suppressing market swings and buoying risk appetite among traders seeking out lofty yields in developing nations. One version that strategists at Citigroup Inc. and other banks have been citing lately involves borrowing in euros to buy a basket comprising the Brazilian real, Colombian peso and Turkish lira. It’s up roughly 18% this year through last week, the most year-to-date since 2005…”
Until recently, speculative leveraging was firing on all cylinders – global “carry trades,” Treasury “basis trades,” corporate Credit, Wall Street “structured finance,” the big tech stocks and indices, margin debt, crypto, derivatives and likely even the precious metals. It’s been an historic global phenomenon, one that masked myriad serious issues and festering problems.
Key facets of this historic Bubble have begun to falter, including crypto and big tech. I suspect that “carry trade” leverage evolved into the greatest contributor to destabilizing global liquidity overabundance. Dollar strength – and associated weakness in the yen, euro and Swiss franc (in particular) – provided a favorable “carry trade” backdrop. Excessively loose monetary policy/low rates in Switzerland, the Eurozone, and Japan stoked “carry” returns. Additionally, relatively low currency market volatility promoted aggressive leveraging.
Now, with the AI Bubble increasingly vulnerable, so much is riding on the sustainability of global “carry trade” leverage. With this in mind, it was not a comforting week. Global yields broke to the upside, while incipient instability began to seep into various markets.
“Yen’s Worst Week Since May Brings It Close to 165 Per Dollar.” The market will force Japan’s Ministry of Finance to aggressively intervene to support the yen. The Bank of Japan must get its act together and meaningfully raise rates – or risk a bond market crash. Such an unsettled backdrop suggests markets might be overdue for a replay of the August 2024 “carry trade” flash crash. It’s reasonable to assume that “carry trade” crowding has only intensified over the past two years (like everything speculative leverage).
For Posterity:
July 21 – Wall Street Journal (Robert McMillan and Amrith Ramkumar): “It’s the stuff of cybersecurity nightmares. On Tuesday, OpenAI said two artificial intelligence systems it was testing broke out of their test environment, hacked their way onto the internet and broke into another company. The victim was Hugging Face, a provider of open-source AI tools. The cause was a cybersecurity benchmarking test that went very, very wrong. Hugging Face discovered the break-in early last week, saying there had been unauthorized access to internal data sets and company credentials. The company wasn’t sure whether customer or partner data had been compromised. At the time, the company also didn’t know who was responsible, but the attack was so sophisticated that Hugging Face employees suspected it required a top-of-the line ‘frontier’ AI model, Hugging Face Chief Executive Clement Delangue said in an X message, posted Tuesday. ‘Turns out it did!’ he added. In a blog post on Tuesday, OpenAI said the culprits were a pair of its models.”
Original Post 25 July 2026