The world’s safest asset had its worst week in a generation. The day after, Nvidia closed at a record. Those two facts can’t describe a bubble bursting, and the reason why tells you what’s really going on with the price of money
On Thursday the yield on the 10-year US Treasury touched 5.34%, its highest since 2002. Britain’s 30-year gilt broke 6% for the first time since 1998. French and Japanese yields hit multi-decade highs alongside them.
On Friday, Nvidia closed at an all-time high, worth roughly $5.7 trillion.
Within hours, social media had decided this was the AI bubble finally going pop. I’ve argued since June that we aren’t in one. This week didn’t change my mind. If anything, the bond market just handed me the best evidence I’ve had.
What is a Bond?
A government bond is an IOU. When investors want a better deal for holding it, its price falls and its yield, the effective interest rate the government pays, rises.
That yield is the benchmark for almost everything else: mortgages, company loans, the discount rate every analyst uses to value a share. Bonds are meant to be the boring bit of a portfolio. This week they behaved like crypto with a pension.
Why is this happening?
There are three major factors at play here, all pushing in one direction.
Oil first. Brent is back above $100 on the Iran conflict, and an energy shock feeds straight into inflation expectations. The giveaway is the split in the data: US core inflation is down at 2.4%, while headline inflation sits at 3.4%. Strip out energy and prices look calm. Leave it in and they do not.
Then supply. The US government bond market is now $32 trillion, deficits keep growing, and every new auction needs buyers. Jefferies’ Mohit Kumar summed it up:
“inflation, deficit and issuance concerns continue to weigh on the bond market.”
More IOUs chasing the same pool of savings means a higher price for that savings.
Then contagion. Global yields move like wolves, as a pack. Zurich’s Guy Miller put it neatly: “as they move up, they are pulling each other up.” And once prices start falling, investors who bet on a rally get forced out. RBC BlueBay’s Mike Bell said
“lots of people are getting stopped out of long positions”,
which is fund-manager for the exits are crowded.
The Federal Reserve didn’t help by raising rates unanimously in September. Friday’s weak jobs report has since cut the odds of another hike on 28 October, which is the only reason Thursday wasn’t worse.
Why This Isn’t 2008
People heard “highest since 2002” and reached for 2008. Understandable. Wrong, though, and the bond market itself is the evidence.
In a genuine crash, money runs toward government bonds, so yields fall. In 2008 the 10-year yield dropped from above 5% to close to 2% as investors stampeded into safety. This week the opposite happened. Investors sold the safe asset. That’s a market repricing the cost of money, which is a completely different illness from a market panicking about losses.
Look at credit, too. European investment-grade spreads, the extra yield companies pay over governments, sit around 0.9 percentage points. That’s the highest since April. In 2008 it was several times that. Stress shows up in credit first, and credit is barely clearing its throat.
And look at what the supposed bubble did. If AI were bursting, AI stocks would lead the sell-off. Instead Nasdaq 100 futures rose on the day of the bond rout, and Nvidia set a record 24 hours later after expanding its buyback by $150 billion, the largest in its history. In 2000, bubble companies printed shares to stay alive. Companies drowning in cash buy them back.
Scott Bessent, the Treasury Secretary, rejected the bubble argument this week too, pointing to the revenues behind Microsoft, Google and Meta’s spending. I’d treat that with a pinch of salt. The Treasury Secretary telling you not to worry about Treasuries is like a landlord assuring you the damp is character. He still happens to be right.
The honest wrinkle: AI is part of the yield story, just from the other side. As I wrote in June’s piece on infrastructure, the data centre build-out is increasingly financed with debt. Trillions in AI borrowing competes with governments for the same capital. AI isn’t bursting. It’s borrowing, and that borrowing is one reason money costs more.
The Diesel Ultimatum
Which brings us to the most revealing story of the week. Washington asked Europe to release 120 million barrels of emergency diesel over 180 days, and reportedly threatened to restrict US diesel exports to countries that refuse. US exports account for roughly a third of global seaborne diesel. US inventories hit a record low of 107.9 million barrels last month, and American diesel is at $6.53 a gallon.
Nothing says special relationship quite like “release your reserves or we stop the lorries”. France, Germany, Italy, Ireland and the UK have agreed to answer with one voice, and officials suggest the release will be well short of 120 million barrels.
Note the timing here. Diesel moves food prices and haulage costs faster than petrol does, and the midterms are on 3 November. I have previously argued that the administration had two incompatible objectives, escalating with Iran while keeping fuel cheap before the vote. Europe’s emergency stocks have just become the shock absorber for that contradiction.
The oil shock is taxing its own cure
Now here is the climate finance point that almost no one is making.
A gas power station is cheap to build and expensive to run, because it buys fuel forever. A wind or solar farm is the reverse: almost all of its cost comes up front, and the fuel is free. That makes renewables unusually sensitive to interest rates. When the cost of borrowing rises, the cost of the cleaner option rises fastest.
So the Iran oil shock pushes up inflation, which pushes up yields, which makes the projects that would end our dependence on oil more expensive to finance. A self-reinforcing loop, and an ugly one. In June I made the case that electrification is the best form of energy security. That’s still true. It just got dearer this week.
Where Sukuk fit
As treasurer of my university’s Islamic Society, I look after its Shariah-compliant investments, so I watch sukuk prices more closely than most students probably should.
Sukuk are not immune to this. Their returns are priced against the same benchmarks, so when Treasury yields jump, sukuk prices fall too. Anyone selling them as a hiding place from the bond market is overselling.
What they do offer is structure. Every sukuk has to sit on a real asset, and the rules rule out borrowing piled on borrowing. That fits the moment. Middle East sustainable sukuk issuance hit $11.4 billion in 2025, more than 45% of the region’s sustainable bond issuance, according to S&P Global. The Islamic Development Bank has raised more than $55 billion through sukuk, and its latest $500 million green issue in London was five times oversubscribed. When the cost of capital rises, investors get pickier, and asset-backed green paper is exactly what picky investors want.
Why Newham should care
Bond yields feel abstract until your landlord’s mortgage fix ends. UK fixed-rate mortgages price of gilt and swap markets, so a 30-year gilt above 6% feeds into refinancing costs. Newham already has the highest repossession rate in London. Landlords facing dearer remortgages pass the cost on, and tenants here have the least room to absorb it.
What happens next
My predictions: The Fed holds on 28 October after Friday’s weak payrolls. The 10-year stays above 5% into the midterms, because none of the three forces we explored go away by 3 November. Europe releases some diesel and Washington calls it a win before polling day. The post-election relief rally I wrote about last month still shows up in equities, but bonds don’t get relief until oil does. And Nvidia, guiding China at zero and buying back stock by the hundred billion, crosses $6 trillion before the January truce deadline.
When the safe asset sells off and the risky one sets a record, you’re watching the price of money reset. Bubbles burst the other way round.
Watch the bond market. Ignore the bubble talk.
Further reading from this column
- Trump-Xi Summit: Nvidia’s Free Option, Boeing’s Maybe and the 10 November Cliff (24 September 2026)
- Why UK Petrol Hit 174p a Litre: Iran, Oil and the US Midterms Explained (14 September 2026)
- Islamic Finance Was Doing ESG Before ESG Had a Name. Can It Help Pay for Net Zero? (4 July 2026)
- Before You Call It a Bubble, Look at the History. Then Look Again. (27 June 2026)
- Ten Trillion Dollars Later: How the Green Economy Quietly Became the Real Economy (20 June 2026)
- The Quiet Reclassification: How a Warehouse Full of Servers Became the Hottest Asset Class in Finance (13 June 2026)
