Blain’s Morning Porridge September 3^rd 2025 – The Judder Moment: China Rises – Western Long Bonds Tumble.

“When bond yields speak, the mighty tremble… but you have to listen to what they are saying…”

You might think China planned it this way. As it challenges the USA as global hegemon, there is panic across the West as Western Long Bond Yields hit record levels. It smells like crisis – In Bond Yields there is Truth – but you have to know how to read the market. Long bonds are weak because of inflation. Be concerned, but not fearful. Buy the short-end – cuts are coming!

Did you feel the Judder Moment last night… It happened. The World Changed.

But first, and not that I would fuel rumour and speculation, or give weight to “fake news”, but the most dangerous six words in politics are “don’t you think he looks tired?”.

The rumours circulating in Washington that Trump has suffered a cardiovascular event – a stroke or a succession of mini-strokes – were only partially eased when he appeared late and heavily made-up at an announcement y’day to announce the de-facto destabilisation of “Space Command”. (Moving the USA’s orbital defence from the open skies of Colorado down into the Swamps of Alabama will mean losing the thousands of highly skilled civilian workers who make it effective for a decade or so.) He was flanked by his VP… (is that bulge in JD Vance’s pocket the family bible I wonder…)

Can’t be true…  Donald Trump is Superman, or so I was assured. Last night he was back on form, posting a classic on Truth Social; a message/warning to Emperor Xi: “give my warmest regards to Vladmir Putin, and Kim Jong Un, as you conspire against The United States of America.”

Wow! Does that mean Donald Trump woken up to the reality these guys are not his friends – were never his friends,  that they are his mortal enemies in the reality of economic dominance, war by another name? Ah, that moment in school playground of global geopolitical reality when you realise the cool kids always hated you. I suspect such subtly would be lost on Donald. How will he punish them for their conspiracy? Huh…

Last night’s Beijing Military Parade was everything it was expected to be – confirmation China, and its associated “Axis of Autocracy”, are challenging the US as global hegemon. The signal from the military hardware on show was clear – challenge us and we are ready. Or will Xi reach out to Trump under the guise of trade discussions, and demand the USA acknowledge the world has turned. That was the judder moment. What, or who, will America First, Maga Trump be prepared to trade to keep his reputation as the greatest bigly deal maker intact?

The gloves are off. China has thrown down the gauntlet with precision timing. You’d almost think they’d planned it that way.

Western Political systems are in turmoil – beleaguered by populist politics promising everything yet unable to solve anything. The Western Alliances in Europe and Asia are riven by doubt and uncertainty, and Western political stability is under pressure from the failures of borrow and spend policies. The over-indebtedness of Western Govts has set the Nervous Nellies all a tiz. Populism is rife, and it’s been easy to find the “useful idiots” to undermine and destabilise the West from within; apologists for Putin, rabble rousers, Bond fluffers, and Brexiteers. (Oh, that will upset some of my readers…)

There is rising talk on the Street that Trump’s momentum is now running flat. The blizzard of executive orders has diminished. Sure, he has done much, made lots of noise, upended the consensus, and sacked all who oppose him – but what has he accomplished?

I will give him credit for spotting the need to shake up the consensus and challenge the bureaucratic blob. His supporters will cite the Big Beautiful Bill of tax cuts and tariff negotiations as drivers of growth – but it will take time for these effects to work through the economy, and these may be undermined/nuetralised if the US were to stumble into a recession. (Personally, I don’t believe many of the companies promising to make massive investments into the USA will – they would want political stability and certainty first!)

Let’s take a look:

• The US stock market is a sign of confidence in the economy and its future outlook. But strip out the big 10 Tech Stocks that have gone bubbliciously stratospheric on AI, its only up by around 4.7% this year. Factor in inflation and growth, and it looks like the US stock market is actually predicting flatline or slowdown.
• Without the promise of a Fed Rate cut later this month – the US stock market would likely be in free-fall.
• Income inequality in the US has continued to widen – half of Americans have negative net worth while the top 10% own 90% of assets.
• Consumer indebtedness on credit cards, car loans, and personal loans continues to rise as wages fail to cover bills. Defaults are rising. Home prices are falling.
• Attempts to cut Government spending through DOGE were laughable and destabilising. It would appear to have cost more to cut contracts than was actually saved. It generated great headlines, but saved nothing. (Run a question on ChatGDP and it will tell you there were $1.2bln of real savings vs $135 bln in costs and $500 bln in lost revenues!)
• Trump’s allies claim that cutting costs and welfare austerity will benefit the MAGA supporters who voted for him. Thus far all they have seen is Job Cuts.
• The likelihood of a stagflationary bust in the USA has largely been discounted by economists (many seeking to reverse their calls earlier this year on rampant inflation), but when tariffs start to bite, the weaker dollar is reflected in supply chains, and the World turns on hostile on buying American goods (try looking for a bottle of Jim Beam in Canada), that’s when recession and inflation will hurt.

Meanwhile, Trump has likely already lost the trade war with China – forced to pull tariffs and compromise. He has embarrassed himself and America on his failed peace initiatives in Ukraine. He has unravelled Western faith in America as the Bastion and Arsenal of Democracy. There is little a diminished USA will able to do as these new powers de-dollarise trade (with its consequent effect on US funding), and reshape the multinational economy to benefit them, not the USA.

Meanwhile: In bond yields there is truth… (But you have to know how to listen to them.)

I did a quick trawl of what my emails and social feeds are saying about long-dated bond yields this morning. It’s truly extraordinary the amount of “informed” comment being posted about the imminent collapse of the UK, France, Europe and the US. Much of it comes from folk who don’t have a breeze what they are gabbling about… I’ve given up trying to tell “Private Wealth Advisors” and their ilk posting cut’n’paste imaginings of Grok on Linked-In as irrefutable truth the UK is on the verge of a bond precipice or about to go cap in hand to the IMF, is absolute nonsense. Yet they still keep writing it – these useful idiots think blaming Rachel Reeves will somehow fix a problem not of her making.

The issue is what the long-end of the bond market is telling the market. Apparently, according to “Very, very concerned” on Linked in, the fact UK bond yields are at their highest in 30 years is a sure, irrefutable signal of the imminent default of the UK. No. It is not.

Such conclusions are bollchocks. Long-end interest rates and the 30 year bond yield is high because i) inflationary expectations haven’t been this high since 30 years ago, ii) the demand for long-end gilts is low because of the higher inflationary expectations. A steep yield curve is not a massive problem – in fact its normal. The duration structure of the UK Gilts market is such that it can easily fund shorter rather than long. It may be a problem in other nations.

The UK government famously sold a Gilt maturing in 2061 – it pays interest of 0.5%. It was massively oversubscribed at launch. The bond now yields 5.2%, and has a price of 23.75. That’s a problem for the investors. Not the Government. (Give you a clue – I am thinking of buying them for the snap back bounce and because they are tax exempt….)

Higher long-end yields are true of all government bond markets – because of inflation. But the thing is – if enough people say something is a threat, a disaster, and crisis, eventually it becomes so. That’s because the market is not clever. It is simply a voting machine. If enough people can become persuaded by a bad narrative, that narrative becomes what the market trades to!

Sadly the current narrative is it’s all the fault of the current government. That’s not true, but its great news for China and the Axis of Autocracy that Western Markets are losing confidence in the politics and markets.

Out of time, and back to the day job….

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital