As far as I can see, President Donald Trump and his administration are nothing short of a menace. When we were writing back in July, the Iran war appeared to be heading for a conclusion, and the oil price had sunk back to $73 per barrel. Sadly, that proved to be temporary, the war continues with little obvious point, and oil is back over $100 again. Meanwhile, other, relatively dormant hostilities, such as in Yemen, are being re-ignited and, of course, we have the incessant tariff nonsense, belligerence to neighbours and (former) friends, etc., etc…. Maybe (just maybe) the mid-term elections could bring some relief…

The notable recent casualty has been international bond markets, as interest rates for longer time periods have leapt. In the US Treasury market, the biggest of them all, thirty-year bond yields have reached 5.7% a level not seen since 2002. In the UK, we have moved to levels not seen since 1998. Holders of these longer-dated bonds have suffered significant capital losses and, of course, governments are having to pay much more to fund their borrowing. The Gilt and other bond markets have an absolutely vital role in the management of the economy. They provide the funds for the day-to-day business of government and filling the gap that politicians so often leave between what they spend and what they actually raise in taxes. Don’t blame the messenger…

Objectively, I can’t say that I find the notion of receiving a rate of 5.4% to lend to the UK Government for ten years particularly alarming, to me the real problem was the ridiculously low rates that persisted over the ten years from 2012 to 2022, something that we did mutter about repeatedly at the time. My view is that the bond markets are belatedly (and quite suddenly, as is their wont) adjusting to the reality of an increasingly fractious international backdrop, economically and in geopolitical terms (plus climate change). Higher rates are the price that gets paid for the uncertainty.

Stock markets are reasonably steady at the headline level but are ever more top heavy with a small number of gigantic US corporations dominant. Higher bond yields present a challenge for equity market valuations but, for the moment, all the focus remains on AI and the humungous amount of capital being devoted to the build-out of its infrastructure.

Our new Prime Minister is talking a long game, but we do really need to hear something quite sensible from Chancellor Healey in his forthcoming budget. The UK is not alone in facing problems with its budget deficit (France is in a shocking state) but ‘something needs to be done’. Scrapping the ‘triple lock’ would be a sensible start, if this is really to happen, but more is required, we do need that defence spending and certainly do not need more taxes if the economy is really to get going again. It is only getting more expensive to fund that budget deficit, blaming others won’t help, time to tackle the spending…
 

The full Quarterly Review is available here.

October 2026

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