5% US 10-year put Bessent’s debt strategy on trial before Congress

EU mid-market update: 5% US 10-year put Bessent’s debt strategy on trial before Congress; Reports that BoE prepares to pull long gilts;

Notes/observations

- The Fed has almost lost the ability to make a quiet decision tomorrow. September hike pricing is now around 93%, the 10Y has traded 5.03%, and futures carry roughly another 40bp of tightening into mid-2027. A hold would therefore not preserve today’s conditions; it would instantly unwind a heavily pre-positioned front end and test whether 5% Treasuries are being held up by inflation expectations or by fear that the Fed is behind the curve. That gives the market an unusual role inside the committee’s reaction function: Warsh may dislike forward guidance, but pricing has supplied some for him. The interesting part of Wednesday is consequently not +25bp itself but whether the statement/SEP validates the sequence markets have already built beyond it.

- The BoE said to be preparing to keep doing QT while quietly removing the part of QT that hurts most. Plans to stop active sales of 20Y and 30Y gilts would still allow the APF to shrink through maturities and shorter-dated sales, but dramatically reduce the amount of duration/DV01 private investors must absorb at the stressed end of the curve. That is not QE and it does not necessarily change Thursday’s policy-rate decision; it is closer to rewriting the maturity composition of tightening after long gilts fell to prices last seen in 1998. The coordination with Treasury and the DMO is equally notable. Once the central bank starts choosing which maturities the market can comfortably digest, QT has crossed from a balance-sheet exercise into debt-management territory—even if the headline annual runoff target only falls from £70B toward the roughly £50B investors expect.

- Bessent goes before House Financial Services at 10:00 ET with the bond market already testing how far Treasury is willing to go. August’s long-end buyback increase was supposed to relieve pressure; instead the 10Y broke 5%, Treasury received $10.489B of offers and accepted only $5.187B, and the market had plainly been positioned for something closer to $10B. Yardeni Research put the challenge neatly: the “Bond Vigilantes” are now daring Bessent to use the bazooka - much larger long-bond buybacks financed with additional bill issuance, the so-called “Bessent Twist.” That makes today’s hearing useful for one thing above all: whether Bessent still treats the long-end problem as a liquidity issue that can be massaged with incremental buybacks, or whether Treasury is getting closer to changing the debt mix itself. A true Twist would matter because it does not ask investors to absorb the same duration and then buy part of it back later; it shifts financing toward bills and removes duration from the market at source.

- Hormuz may be reopening in barrels before it reopens in ship counts. Kpler saw only four commodity vessels transit Monday, down from ten Sunday and nowhere near the pre-war traffic pattern; yet TankerTrackers’ September 14 satellite work shows three empty VLCCs moving north and one laden VLCC south in daylight, alongside heavier crude/LNG/LPG ship-to-ship transfers in the Gulf of Oman. Those observations are not necessarily contradictory. A system built around a smaller number of very large tankers, off-AIS movements and offshore STS can restore meaningful export volumes while conventional traffic statistics still look catastrophic. The U.S. target of ~50 nightly transits by mid-September has plainly not been met, but barrels may recover much faster than vessel counts. That is especially important with Petroline offline: the market is now effectively racing partial Hormuz normalisation against Yanbu inventory depletion and a pipeline repair that some Saudi sources say could take more than a month.

- China’s August data are almost a balance-sheet explanation for why the Xi meeting will be difficult. Industrial output accelerated to 5.2%, comfortably beating expectations, while retail sales managed only 0.4%, fixed-asset investment fell 7.2% and property investment nearly 20%. China has become better at replacing property with factories than at replacing the household income/property wealth those factories were supposed to serve. That leaves the economy producing increasingly sophisticated goods into weak domestic absorption—and therefore structurally dependent on selling more abroad. The offshore yuan around 6.71, near a three-year high, makes the configuration stranger still: Beijing is allowing a firmer currency that helps with imported energy costs even while manufacturing excess capacity becomes the central political grievance abroad. Bessent’s $1.2T-surplus complaint is visible almost line-by-line in today’s data.

- The Supreme Court handed Trump a 2026 defeat but may have given the administration a 2028 instruction manual. The Court refused to let USPS impose its new barcode/list requirements on mail ballots before November, and only Alito and Thomas publicly dissented; operationally, that preserves the existing system for a midterm in which control of Congress may be decided on very small margins. But Kavanaugh’s concurrence is the subtle part: he said there is a “fair prospect” USPS actually has authority to impose such rules, while agreeing that states cannot reasonably rebuild their election-mail systems this close to voting. So the Court did not settle the underlying federal-power question nearly as decisively as the headline suggests. Trump loses the tactical tool for November 3, but an administration willing to promulgate a similar rule far earlier could return with a materially stronger case in 2028.

- Nvidia CEO Jensen Huang told the All-In Summit that China will get to advanced lithography “by 2030,” adding that China is already so good at high-volume manufacturing that, from Beijing’s perspective, “they’re already there.” That is much more aggressive than Zeiss’s recent estimate that China remains roughly 15 years behind in EUV, and it reframes the ASML risk. Aishengna’s near-term scale is still tiny—about five immersion-DUV tools this year and ~20 in 2027 versus roughly 130 immersion systems of annual ASML capacity—so there is no immediate unit-share threat. The important question is whether China can make domestic DUV dependable enough for SMIC, Hua Hong and CXMT to keep mature-node and selected multipatterned lines running if controls spread from new scanners into spares, software and field service. If Huang is even directionally right on the 2030 timetable, ASML’s China exposure stops looking like a long-duration service annuity and starts looking like a revenue pool with a visible expiry curve well before China has an ASML-class EUV machine.

- Cross-asset: the pressure remains rates rather than equities alone. UST 10Y 5.03%, JGB 10Y >3%, Bund 10Y ~3.56%; DXY ~99.65, EUR/USD ~1.154, USD/JPY ~154.95. Brent is ~$107.5, WTI ~$103.3, while spot gold is near $4,288. European equities are down roughly 0.9%, S&P and Nasdaq futures about -0.4%, Taiwan closed -0.8% and Nikkei roughly flat. BTC -2.3% near $77.3k remains one of the cleaner expressions of the renewed duration shock.

Asia

- China Aug New Home Prices M/M: -0.2% v -0.2% prior.

- China Aug Retail Sales Y/Y: 0.4% v 0.8%e.

- China Aug Industrial Production Y/Y: 5.2% v 4.8%e.

- China Aug YTD Fixed Urban Assets Y/Y:-7.2% v -7.2%e.

- China Aug Surveyed Jobless Rate: 5.3% v 5.2%e.

- China Aug YTD Property Investment Y/Y: -19.9% v -20.1%e.

- South Korea Aug Export Price Index M/M: -3.7%t v +0.9% prior; Y/Y: 42.4% v 48.9% prior.

- South Korea Aug Import Price Index M/M: -2.4% v -1.0% prior; Y/Y: 15.6% v 18.8% prior.

- New Zealand Aug Total Card Spending M/M: -0.5% v +0.9% prior.

- Japan sold ¥700B vs. ¥700B indicated in 20-Year JGB Bonds; Avg Yield: % v 3.6980% prior; Bid-to-cover: x v 3.98x prior.

Global conflict/tensions

- IRGC Commander Rezaee reiterated that President Trump was sending 'mixed signals' on negotiations; Iran will not enter talks until its conditions are met.

Europe

- US sanctions on Russia's VTB Bank over alleged involvement in Iranian sanctions evasion.

Americas

- US Supreme Court refused to clear the postal service to enforce restrictions on mail-in ballots for the congressional midterm elections.

Energy

- Keplr noted that commodity vessel transits at ‌Hormuz totaled 4 on Monday, down from 10 during the prior day.

- IRGC claimed a Panama-flagged oil tanker recently struck a naval mine in the Strait of Hormuz.

- Houthis maintain control of west coast of Yemen and are said to be increasing drone and missile strikes.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.85% at 10,606.57, DAX -0.72% at 25,231.93, CAC-40 -0.83% at 8,050.14, IBEX-35 -0.44% at 19,478.78, FTSE MIB -0.91% at 51,161.50, SMI -1.27% at 13,702.40, S&P 500 Futures -0.54%].

Market focal points/key themes: European equities extended losses on Tuesday, with the DAX down 0.72%, the FTSE 100 off 0.85%, the CAC 40 lower by 0.83% and the FTSE MIB falling 0.91%, as traders confronted Middle East pipeline and shipping risks, elevated sovereign yields and fresh calls from OpenAI and Anthropic executives to pause advanced AI development. Brent crude rose roughly 1.2% to approximately 107.97 dollars a barrel after Saudi Arabia blamed Iran-backed Iraqi elements for a strike on its East-West pipeline that could affect up to 4% of global supply, while Houthi attacks and postponed Oman talks delayed any near-term reopening of the Strait of Hormuz. The most notable individual movers were Wickes Group and M.P. Evans Group, each advancing about 9% on stronger interim results and upgraded outlooks, against Trustpilot’s 16% collapse on softer bookings guidance and Lanxess’s 6.5% decline amid higher oil-linked feedstock costs and weak Chinese demand. Markets remained defensive ahead of the Federal Reserve’s two-day FOMC meeting, which priced a 90% chance of a 25-basis-point rate hike—the first since mid-2023—while the U.S. 10-year yield hovered near 4.98% and the German Bund yield held at 3.51% following last week’s sticky U.S. CPI print and the ECB’s own quarter-point increase.

Equities

- Consumer discretionary: Ubisoft [UBI.FR] +2.5% (European software and gaming rebound after US cybersecurity and software shares outperformed semiconductors overnight), Wickes Group [WIX.UK] +9.0% (interim results showed stronger TradePro and retail trading, prompting a higher full-year profit outlook).

- Consumer staples: M.P. Evans Group [MPE.UK] +9.0% (first-half earnings benefited from firmer palm-oil prices and production growth, with the dividend increased).

- Financials: DWS Group [DWS.DE] -4.5%, CVC Capital Partners [CVC.NL] -3.0%, Amundi [AMUN.FR] -2.5% (higher global bond yields, Fed-hike risk and weaker risk appetite pressured asset managers and alternatives platforms), Deutsche Bank [DBK.DE] -3.0%, BNP Paribas [BNP.FR] -1.5%, ING [INGA.NL] -1.5% (risk-off selling as oil-driven inflation fears and Fed-hike expectations pushed sovereign yields higher).

- Healthcare: Schott Pharma [1SXP.DE] +3.0% (healthcare-equipment rebound and defensive rotation after Monday's growth-stock selloff).

- Industrials: Lanxess [LXS.DE] -6.5%, Evonik [EVK.DE] -3.0%, BASF [BAS.DE] -2.0% (Brent above $107 raised feedstock-cost concerns while weak Chinese activity data hit chemical-demand expectations), Kier Group [KIE.UK] +4.0% (full-year operating profit and cash generation improved, while the order book supported the new-year outlook).

- Technology: Trustpilot [TRST.UK] -16.0% (first-half results exposed slower bookings growth and a softer second-half trajectory than elevated expectations).

Speakers

- Bank of England said to be poised to halt its sales of long-term government debt as soaring borrowing costs pile pressure on the Chancellor.

- ECB's Moulin (France): Inflation outlook justified recent ECB rate hike. Member States must take the necessary steps to reduce the budget deficit. Rise in long term rates was a global phenomenon due to increased supply and higher inflation expectations. France Debt Agency (AFT) had no problem to sell bonds; no difficulty raising funds.

- Iranian Foreign Min Araghchi said to visit China on Wed, Sept 16th.

- Bank of Korea (BOK) Aug Minutes saw member Hwang Kun-Il noted that needed more time to review if inflationary pressures were here to stay. Stronger KRW currency (Won) made financial conditions less accommodative. Another member noted that needed to adjust the timing of future rate hikes depending on inflation, recovery of energy supply chain.

- Japan Fin Min Katayama reiterated stance that would not rely on the issuance of deficit-covering bonds to fund the tax cut. To ensure market credibility reviewing both spending and revenue and would control debt issuance for full year.

- Thailand Fin Min Ekniti: Considering 30% tax on imported EVs.

Currencies

- USD held onto recent gains with focus on Wed FOMC rate decision. Fed Gov Warsh was expected now to raise interest rates driven by concerns that higher energy prices, tariffs, AI-related supply chain pressures, and stronger-than-expected inflation could keep price growth elevated.

- EUR/USD at 1.1535 by mid-session; USD/JPY testing the 155 area.

- The close link between the oil price and interest rate expectations in the current environment continued thus adding continued pressure in global bond market.

- Bond yields rose in the session to test multiyear highs.

- The 10-year German Bund yield last at 3.55%, France 10-year Oat at 4.53% and 10-year Gilt yield at 5.41%; 10-year Treasury yield: 5.03%; 10-year JGB: 3.03%.

Economic data

- (DE) Germany Aug Wholesale Price Index M/M: 0.9% v 0.2% prior; Y/Y: 6.8% v 5.3% prior.

- (UK) Aug Jobless Claims Change: +27.8K v -11.8K prior; Claimant Count Rate: 4.4% v 4.3% prior; Payrolled Employees Monthly Change: -26K v -5Ke.

- (UK) July Average Weekly Earnings 3M/Y: 3.9% v 3.9%e; Weekly Earnings (ex-bonus) 3M/Y: 3.5% v 3.5%e.

- (UK) July ILO Unemployment Rate: 4.9% v 4.9%e.

- (NO) Norway Aug Trade Balance (NOK): 100.4B v 88.8B prior.

- (FR) France Aug Final CPI M/M: 0.7% v 0.7% prelim; Y/Y: 2.4% v 2.4% prelim

- (FR) France Aug Final CPI EU Harmonized M/M: 0.7% v 0.8% prelim; Y/Y: 2.6% v 2.7% prelim; CPI Index (ex-tobacco): 103.35 v 103.40e

- (ES) Spain Aug Final CPI M/M: 0.7% v 0.7% prelim; Y/Y: 4.3% v 4.3% prelim.

- (ES) Spain Aug Final CPI EU Harmonized M/M: 0.7% v 0.6% prelim; Y/Y: 4.6% v 4.5% prelim.

- (ES) Spain Aug CPI Core M/M: +0.3% v -0.1% prior; Y/Y (final) Y/Y: 2.9% v 2.9% prelim.

- (PL) Poland Aug Final CPI M/M: 0.3% v 0.4% prelim; Y/Y: 3.4% v 3.4% prelim.

- (IT) Italy July Total Trade Balance: €8.2B v €4.3B prior; EU Trade Balance: €1.3B v €1.7B prior.

- (TR) Turkey Aug Central Gov't Budget Balance (TRY): +12.9B v -378.1B prior.

- (IT) Italy July General Government Debt: €3.206T v €3.207T prior.

- (DE) Germany Sept ZEW Current Situation Survey: -47.1 v -52.1e; Expectations Survey: 34.7 v 40.0e.

- (EU) Euro Zone Sept ZEW Expectations Survey:25.8 v 31.4 prior.

- (EU) Euro Zone July Trade Balance: €5.0B v €1.0B prior; Trade Balance NSA (unadj): €14.2B v €8.6B prior.

- (CA) Canada Aug Existing Home Sales M/M: -0.7% v -0.5%e.

Fixed income issuance

- (EU) European Union opened its book to sell EUR-denominated 3-year and 30-year NGEU bonds via syndicate.

- (UK) DMO sold £1.25B in Jan 2029 Gilts via tender.

- (SE) Sweden sold total 20.0B vs. SEK20.0B indicated in 6-month and 9-month Bills.

Looking ahead

- (NG) Nigeria Aug CPI Y/Y: No est v 15.4% prior.

- (EU) ECB's Reinesch (Luxembourg).

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €5.0B in 2.70% Sept 2028 Schatz.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2033, 2037 and 2040 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (IL) Israel Aug Unemployment Rate: No est v 3.1% prior; Broad Unemployment Rate: No est v 4.0% prior.

- 06:00 (FI) Finland to sell €1.0-1.5B in 2032 and 2036 RFGB Bonds.

- 06:00 (ES) ECB's Escriva (Spain).

- 06:30 (IN) India Aug Unemployment Rate: No est v 5.1% prior.

- 06:30 (UK) DMO to sell £750M in 4.25% Jan 2040 Gilts via tender.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (BR) Brazil July Retail Sales M/M: -0.3%e v +0.5% prior; Y/Y: 2.3%e v 2.9% prior.

- 08:00 (BR) Brazil July Broad Retail Sales M/M: +0.5%e v -1.0% prior; Y/Y: 2.0%e v 4.9% prior.

- 08:00 (BR) Brazil Sept CONAB Corp Production.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending August 29th: No est v +12.0K prior.

- 08:30 (US) Sept Empire Manufacturing: 15.0e v 20.6 prior.

- 08:30 (CA) Canada July Wholesale Sales (ex-petroleum) M/M: -0.5%e v +2.8% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 10:00 (IT) ECB’s Cipollone (Italy).

- 10:00 (US) Treasury Secretary Bessent testifies before Congress

- 11:00 (PE) Peru Aug Unemployment Rate: 4.7%e v 4.7% prior

- 11:00 (PE) Peru July Economic Activity Index (Monthly GDP) Y/Y: 1.8%e v 1.8% prior

- 11:30 (IL) Israel Aug CPI M/M: 0.8%e v 0.3% prior; Y/Y: 1.6%e v 1.6% prior (revised from 1.5%)

- 11:30 (US) Treasury to sell -Week Bills

- 13:00 (US) Treasury to sell 20-Year Bond Reopening

- 13:00 (DE) ECB's Schnabel (Germany)

- 16:30 (US) Weekly API Crude Oil Inventories:

- 18:45 (NZ) New Zealand Q2 Current Account Balance (NZD): -2.6Be v -1.0B prior; Current Account to GDP Ratio YTD: -3.8%e v -3.6% prior

- 19:50 (JP) Japan Aug Trade Balance: -¥1.056Te v -¥638.3B prior (revised from -¥634.5B); Trade Balance Adjusted: -¥978.6Be v -¥686.0B prior; Exports Y/Y: 18.2%e v 23.2% prior; Imports Y/Y: 26.1% v 27.9% prior (revised from 27.8%

- 19:50 (JP) Japan July Core Machine Orders M/M: -1.2% v +9.7% prior; Y/Y: 9.6%e v 16.9% prior

- 20:30 (AU) Australia Aug Westpac Leading Index M/M: No est v 0.0% prior

- 22:35 (CN) China to sell 30-Year Additional Bonds

- 22:35 (CN) China to sell 1-month and 3-month bills

- 23:00 (NZ) New Zealand Aug Non Resident Bond Holdings: No est v 58.9% prior

- 23:30 (JP) Japan to sell 12-Month Bills

- (DE) Delaware Primary Election