In Bond Markets there is truth – and they are flashing warning signals a systemic market reset is on the cards. As rates rise, the relative prices of all financial assets will be impacted as the price of money normalises. It’s a period of transition with a high chance of an unstable reset, which is magnified by QE setting a false expectation of long-term low rates, and the growing realisation financial systems will suffer from political incompetence.

The coming year is likely to be shaped by higher inflation from energy and El Nino, rising interest rates, “policy-mistake” risks, and revaluation risks as capital markets adapt to rate normalisation. Looming over it all be political noise. Understanding where we are, how we got here and what happens next will be critical.

There may be multiple storms and whirlpools on the horizon, but the market remains convinced it will weather them all. That’s a sign of dangerous times. There are times to let the boat run free, and times to trim the sails and slow before something breaks with catastrophic consequences: will it be the AI Bubble, Debt, Iran & Oil, or a No-See-Um?

In Bonds there is truth. While government bond yields have risen some 40-50 basis points since the Iran War, and yield curves have steepened, we are not in crisis territory yet. However, the risks of “higher for longer” rates, and sustained inflation have risen. These will impact credit markets and potentially trigger a cascading corporate crisis – leading to all kinds of hell that governments and central banks are now ill-equipped to deal with.

When staring down the abyss of looming stagflation, a bond market rout, and a reset on the global economy… let’s try to pretend it’s all something else. Christine Legarde would have made a great French President. Of course it’s not Stagflation... it’s just... Well? What is it?

The UK survived yesterday’s Pretend and Extend budget. It was a lacklustre soap-opera moment. It won’t cure the UK’s long-term issues or fix Broken Britain. If politicians were serious about repairing the political economy of the UK – it’s time for root and branch surgery on the “frictions” that leave the nation suffering Economic Dementia!

Earlier this week the US Fed eased interest rates under pressure from President Trump. There are host of confusing signals around employment and price stability, but the Fed jumped anyway. The bond market sold-off – a polite growl that was just enough to warn it’s not happy about political interference and potential policy mistakes. When it barks.. it will be for good reason.

The Fed has fallen. What will negative real yields do the US economy? It will likely further fuel asset speculation and lead to renewed QE as global buyers exit the US bond market. Using inflation to wipe the budget deficit may even be part of the plan. The path ahead looks increasingly fraught. Been here before.

Trump described Fed Head Jay Powell as "stupid" for not easing rates – Powell is playing safe, waiting for the Trump impulse to play through the economy. The standoff in Iran looks likely to prove Trump’s pivotal moment: is he a risk taker, or just noise? The stakes are massive - the upside is consolidation of US power, the downside includes acute embarrassment and MAGA disillusionment in the Presidency.

The bond bear market looks set to deepen as rising energy prices threaten to keep inflation sticky. The way bonds impact the economy is more complex than most understand – it’s not  just interest rates, but how inflation, and growth limit policy choices.