Antagonistic forces

24 August 2026

AT A GLANCE

Last week was all about America facing resistance not only from Iran and Canada but also from the bond market
Scott Bessent’s “Treasury Twist” didn’t lower yields but weakened the dollar while gold and bitcoin rallied
Our positioning works well in the current rotation. The week ahead will be about Iran and monetary policy hints

Last week was all about America’s antagonisms. On the geopolitical front, the perspective of imminent severe economic sanctions against Iran pushed oil prices 6% higher and combined with what appears to be the beginning of a trade war between the US and Canada. But the biggest antagonism was probably between US Treasury Secretary Scott Bessent and the bond market. The announcement of a plan to buy-back long-dated Treasuries, funded by shorter-term borrowing, initially produced the desired effect of lowering long-term yields. For one day. Bond markets quickly considered that the measure was far from outweighing a backdrop of massive borrowing from both public and private issuers, inflationary risks, and a Fed chair known to oppose deploying the central bank’s balance sheet. The week was thus slightly negative for bonds as well as for the dollar, which revived the “debasement trade”: gold gained 5% and bitcoin 23%, in a renewed interest for the “currencies that cannot be printed”. Stocks had mixed returns, with a style rotation from AI and growth to value and commodities, leading to an outperformance of emerging markets over developed ones.

The backdrop is fine, with robust flash PMIs, but policy matters, especially as the midterms election campaign has started. The US should announce today (Monday) a set of severe economic sanctions against Iran. The consequences -and Iran’s reaction- are unknown with a broad range of possible outcomes, many of them not particularly positive. The week ahead will also see Kevin Warsh’s first speech at the annual Jackson Hole symposium, at a critical time: bond markets are nervous, the chair is against forward guidance, the institution will evolve but not before a few months… Volatility is here to stay, with a possible continuation of the current trend out of dollar assets. This wouldn’t be adverse to our current positioning and its generous allocations to emerging markets and gold. Nvidia will also report their quarterly numbers on Wednesday. Have a great week.

Cross-asset Update

The past week saw a marked divergence in performance across markets. Some asset classes most sensitive to liquidity surged, from Bitcoin (+23.3%), to gold (+5.2%), to EM equities (+1.2%), and the Ark Fund (+6.3%), while stocks (-1.3%) closed mostly in the red and bonds little changed. The term premium scare, the rise in yields at the longer end of the Treasury curve across the major developed economies, is to blame for the overall negative returns. War times and unchecked government spending are fertile ground for inflation, that remains at the forefront of investors concerns. Yields have been bid up, as the holding of bonds under an outlook of growing price pressures makes sense only if the related risk is compensated by larger coupons.

Equities, not far removed from all-time highs, have YTD entertained a relatively more complacent view with focus on resilient growth and a not yet concerning rate of inflation, a so-called Goldilocks environment, the sweet spot for stocks. Treasury markets have been more forward looking, caught between Kevin Warsh’s hawkish words so far unsupported by policy action, and the hampered flow of goods through the Strait of Hormuz that could cause further commodity price spikes. The sharp rally in liquidity-sensitive assets, and the related fall in the US dollar (-0.9%), was on the other hand triggered by the larger buybacks announced by Treasury Secretary Scott Bessent. Starting from September 9 till early November, the size of buybacks would be doubled. Off-the-run bonds held by market-making banks, that is less liquid Treasuries from previous auctions held by dealers, would be withdrawn in exchange for cash, to be raised by issuing Treasury bills. The size of the US debt won’t change, but its duration will be lowered. This could be simply viewed as a technical operation meant to make the balance sheet of dealing banks more liquid. But it is actually something more, as indicated by market’s reaction and what Bessent himself called signalling. “Part of it is signalling here … that yields don’t reflect the underlying fundamentals”.

Markets promptly caught on this and inferred that a sort of Treasury put exists. Treasury buybacks did not move the needle in terms of yields, that climbed right back by the end of the week. But if “yields don’t reflect the underlying fundamentals”, at some point more substantial action would be taken, at least this must be the investors guess. Bessent’s signalling was enough to trigger a rotation from growth, technology, into value, materials and EM stocks, and to weaken the dollar and send gold rallying for the week. We hold the view the "Bessent trade" has legs, and that will be confirmed by further dollar weakness alongside gold strength possibly into year-end. We cannot vouch for the sustainability of this move, but we think there is more to go, with gold headed towards $4,800/oz. We also think this is only a foretaste of future trends to come down the road, with value set to outperform growth in equities, gold to rally past all-time highs, and the dollar to weaken significantly.

Risk aversion came back last week and it wasn’t about geopolitics

Fixed Income Update

Long-end sovereign yields were in the eye of the storm last week. The 30-year US Treasury yield rose above 5.3% on Monday, its highest level since 2007, before partially retracing after a surprise announcement from US Treasury Secretary Scott Bessent. The Treasury said it would at least double liquidity-support buybacks for long-dated nominal coupons to a minimum of $4bn across the 10- to 30-year sector between 9 September and 4 November 2026. Funded through higher T-Bill issuance, the move resembles the Fed’s earlier Operation Twist and came only two weeks after the regular quarterly buyback schedule. Wall Street viewed it as a response to long-end yields reaching multi-year highs, although the step is highly unusual and weakens the predictability of Treasury buybacks. It also addresses the symptoms rather than the underlying drivers of higher long-end yields. We don’t believe Bessent Put will have the similar effect as the earlier Fed Put. Meanwhile, US public debt exceeded $40tn for the first time, reaching $40.05tn on Tuesday, earlier than expected partly due to revenue losses from invalidated tariffs.

The FOMC minutes revealed that several officials favoured an immediate rate hike at that meeting, with three of the twelve voting members formally dissenting in favour of a 25bp increase. US weekly jobless claims for the week ending 15 August fell 6,000 to 206,000, coming in below the median economist estimate of 210,000. Markets turn to Fed Chair Kevin Warsh's speech at the Jackson Hole symposium and US PCE inflation data as the key events for this week

EM spreads were steady around 160 bps OAS over Treasuries, with yield-to-worst at 6.19%. IG outperformed as rates partially retraced, while HY and EM USD posted modest losses on weaker risk sentiment and the broader rates backup. US IG issuance was very active, with twelve borrowers pricing $9.1bn on Monday and August supply exceeding $145bn, a new monthly record. New issue concessions averaged around 5bps on roughly 2x-covered deals, though order book attrition stayed high at nearly 40%, signalling investor discipline. Fund flows remained constructive, with short and intermediate IG funds attracting $1.88bn, HY drawing $97.1mn and Treasuries adding $3.45bn.

GCC debt index spreads widened modestly over the past week, with spreads increasing by around 3 bps to 104 bps. Bahrain underperformed the broader market, with spreads widening by 8–10 bps across the curve, reflecting continued concerns around its fiscal position and elevated debt burden. While Oman spreads widened by approximately 4 bps, while spreads across other GCC sovereign issuers remained broadly stable. Long-duration bonds continued to face pressure amid higher global yields. Bahrain sovereigns and UAE real estate issuers were among the weaker performers, with bond prices declining by upto 1.0% over the week. While spreads in IG segment remained stable.

Risk aversion came back last week and it wasn’t about geopolitics

Equity Update

Global equities fell for the first time in a month, the MSCI ACWI down 0.9%, as the pressure moved from earnings to the bond market, with long Treasury yields at their highest in decades on oil and debt supply, and a midweek Treasury intervention that steadied things for exactly one session. The S&P 500 lost 1.4%, falling Monday through Thursday's Walmart shock before recovering on Friday as US business activity grew at its fastest pace in more than four years. For us the more interesting part is what kept working. The rotation into the average stock continued, the equal weight S&P now leads the cap weighted index by about three points this year and the biggest equal weight ETF crossed $100 billion of assets for the first time, so our breadth argument is now showing up in flows. The consumer, meanwhile, is choosing rather than retreating. Walmart fell the most since 2022 as US comparable sales grew at their slowest pace in six years on pharmacy pricing, even though it beat on earnings and raised guidance, while Target jumped to a two year high on a lifted outlook and Ross beat, so the weakness is name specific, not general. Healthcare provided the week's genuine surprise, Moderna spiked a record 177% after its melanoma vaccine with Merck cut recurrence in a late stage trial. And the AI complex spent the week waiting rather than breaking, chips had one bad session and then steadied into Nvidia's results this Wednesday, while the private side kept growing, Anthropic's run rate reached $65 billion, up seven fold in a year, with a listing valuation near $2 trillion now being discussed.

Outside the US, China was the standout, MSCI China up 2.8% while developed markets fell 1.1%, and it rallied while carrying the same AI costs that hurt it a week earlier. Alibaba's cloud accelerated to 45% growth with AI revenue approaching a $10 billion run rate, and although adjusted earnings fell 42% on the spending, the follow through came on Sunday, a $10 billion share placement, Hong Kong's largest ever follow on, priced at less than a 4% discount. Chinese investors are now willing to fund the buildout rather than punish it, which is a change worth noting. Korea slipped 0.9% but delivered the news we care about, Samsung plans to return up to $79 billion to shareholders from its AI profits, following SK Hynix's $29 billion buyback, so the memory theme is now paying out as well as compounding. Japan was the laggard, the TOPIX down 3.0% for its worst week since the conflict began, as hot inflation made a September hike a live question and the AI heavy Nikkei fell harder still, which is exactly why we hold Japan through the broad index rather than the tech sleeve. Europe slipped 0.5% in a second weekly decline as the earnings season wound down and energy costs pressured sentiment, though Friday brought the best session in weeks on the strongest manufacturing reading in more than four years, and the mix underneath turned defensive, resources and healthcare led while banks, industrials and tech lagged.

This week is the one the month has been building toward. Nvidia reports Wednesday, with consensus targets almost 40% above the price, Some argue the stock may be undervalued by as much as half, and options pricing a move of roughly $275 billion in market value in a single session. alongside more on fiscal consolidation, Our positioning does not change into any of it, the derating plus the broadening is why we stay with the themes, and we let the earnings keep making the case.

Risk aversion came back last week and it wasn’t about geopolitics

Written by:

Maurice Gravier Chief Investment Officer , [email protected]
Nawaf Alnaqbi Head of Equity Strategy , [email protected]
Satyajit Singh Fixed Income Analyst , [email protected]
Giorgio Borelli Head of Asset Allocation , [email protected]

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