09 Oct 2026
As we come to the end of the summer, there has been plenty to talk about — AI debt issuance, the new Fed Chair, currency intervention and, of course, the war in the Middle East. But rather than go back over those themes, I want to look ahead. For the rest of the year, there are three things worth watching closely: long-dated government bond yields and the risk of intervention, the US Midterm Election, and the UK Budget.
Starting with long-dated bond yields. They’ve been getting plenty of attention, with 30-year yields reaching multi-year highs in several countries. That move reflects a shifting inflation backdrop since the Iran war began, renewed concerns about government borrowing, and higher term premia.
Source: Bloomberg as at 4 September 2026.
Long-dated yields don’t look wildly out of line with fundamentals. But their absolute level is becoming a headache for the US and UK Governments. Higher yields mean higher interest payments, adding to already large debt burdens. In the UK, they eat into the already limited fiscal headroom.
In the US, with debt levels now over $40 trillion dollars, Scott Bessent, the Treasury Secretary, is clearly getting more nervous. He has suggested that the Treasury could buy back more long-dated debt - this been read as an attempt to put a lid on yields. But the $4 billion figure mentioned won’t be enough on its own. The signalling matters.
If Bessent can somehow find a bond-buying bazooka large enough to contain long-dated yields, that would be a major development. This is not necessarily our base case, but markets should be watching closely for this.
The second thing is the US Midterm Election at the start of November. This comes as the President’s approval ratings have been sliding. The war in the Middle East and rising inflation have both weighed on his popularity and there’s still no clear sign of resolution with Iran.
Source: Bloomberg as at 4 September 2026.
The latest polls suggest the Democrats could narrowly win both the House and Senate. So why does that matter? It would probably mean gridlock in Washington: less meaningful legislation and a higher risk of another Government shutdown. Markets generally don’t like uncertainty, but bond markets may take some comfort from gridlock limiting further fiscal spending.
There’s also a more specific angle. Some state-level races could affect future data centre building plans, with certain candidates opposed to further development. Given how important data centres have been for US growth, any real pushback could be negative for risky assets and economic momentum.
And finally, the UK Budget in October. This is Andy Burnham’s chance to set out his vision for the country and, crucially, how he plans to pay for it. The previous Government came under pressure because it failed to cut spending enough to reduce the deficit. The Gilt market made its concerns clear, especially around continued borrowing.
So the new Prime Minister has to walk a narrow path. He needs to balance political ambition with very limited fiscal room. He has previously said the Government should not be “in hock” to the Gilt market, but pragmatism is likely to win out. So I expect the Budget to continue to follow the fiscal rules.
The risk is that this is done by reclassifying some borrowing, rather than through a real improvement in the public finances. If so, the market could react. So far, the Gilt market has given Burnham the benefit of the doubt. But the moment is approaching where he’ll need to show whether he can succeed where his predecessor failed. Our base case is neutral for Gilts, but with risks skewed to the downside.