Nineteen Years
The 10-year US Treasury yield climbed to its highest level since June 2007. The 30-year pays almost 5.5 percent. The S&P 500, meanwhile, closed the week in the green, just 0.7 percent below its record, and the fear index is dozing at 15. The bond market is screaming; the stock market has its headphones on.
🔴 Signal of the Week
The price of money is rising faster than the central bank can raise it. The Fed lifted its rate to 3.75–4.00 percent on September 16. Within a week, the 10-year yield went from 4.96 percent on September 22 to 5.18 percent on Thursday, touching roughly 5.2 intraday. The 30-year reached 5.47–5.49 percent. US mortgage rates are climbing to 7.1–7.4 percent. In other words, the bond market has already done one or two more hikes on the Fed’s behalf.
Why? Two forces met in one week. First, the economy is not cooling: September’s composite purchasing managers’ index (PMI) jumped to 58.4, the highest since July 2021, and input costs are rising at the fastest pace in four years. Initial jobless claims were just 197,000. Second, supply. According to CNBC, Kevin Warsh acknowledged that the Fed’s balance sheet reduction has stalled, because the long-bond sell-off complicates it. The Treasury is borrowing in enormous volumes, and the US president is weighing a ban on diesel exports because fuel at home is at record prices.
That is the mechanism. The central bank controls the short end; the long end is controlled by whoever buys the debt. When inflation is driven by a physical shock (Hormuz closed, Brent above $100) and the state has no intention of cutting the deficit, buyers demand a premium for time. Howard Marks this week called it a total lack of fiscal discipline. The question is what a superpower does when the cost of its own debt becomes an engine of inflation. History has one answer: sooner or later the Treasury and the central bank start controlling the long end. That is not this week’s event, but this week it got closer.
📸 Market Snapshot
Friday, September 25 closes; crypto as of Sunday evening. Weekly changes are measured from last review’s levels; sources disagree by a few tenths of a percent.
🔵 Central Bank Pulse
Fed: an October hike is almost priced in
After the September 16 hike, Fed officials spoke with one voice all week. New York Fed President John Williams said it is reasonable to expect another hike before year-end. Austan Goolsbee backed the hike on inflation persistence and warned that the road to 2 percent may be painful. Alberto Musalem sees more hikes. In futures markets, the probability of another hike on October 28 ended the week at 66–70 percent, after reaching 77.5 on Thursday.
The most important news of the week, however, is not about rates but about the balance sheet. According to CNBC, Warsh acknowledged that balance sheet reduction has stalled: the $6.7 trillion balance sheet is no longer shrinking, because inflation takes priority, some committee members resist, and the long-bond sell-off gets in the way. Balance sheet data (September 23): reverse repo at zero, Treasury General Account (TGA) at $977bn, bank reserves at $2.93 trillion. Translation: the Fed is raising the price but no longer reducing the quantity. One hand brakes, the other keeps the door open.
ECB: a pause without a promise
Deposit rate at 2.50 percent since September 10. Chief economist Philip Lane said on September 23 that the next decisions will be less straightforward than September’s. He is weighing a prolonged energy shock against limited second-round effects on wages, and stronger activity against tighter financial conditions. A pivot? No, a pause. The euro fell for a third straight week, to 1.14, which only makes energy more expensive for Europe.
Others: the North hikes, Beijing waits
Norges Bank raised its rate from 4.25 to 4.50 percent and said it is prepared to go further. Sweden’s Riksbank held at 1.75 percent but hinted at tightening because of fuel prices. The Swiss National Bank held at zero and raised its inflation forecasts for every year. In Japan, the yen strengthened more than 1 percent on Friday to 157.1 per dollar after Finance Minister Katayama said Trump himself had raised concerns about yen weakness. The People’s Bank of China left its loan prime rates unchanged for the sixteenth month, is letting the yuan strengthen, and has added gold for 22 straight months, 20.2 tonnes in August.
What it means together
Nearly every developed-world central bank is tightening at the same time, and the only one pumping liquidity is China’s. Michael Howell puts it bluntly: the global central bank money base is flat, and falling bond prices are shrinking the collateral multiplier. In this environment, every additional basis point on $40 trillion of debt is a budget line. That is why the halt to balance sheet reduction is a more important signal than the October hike. It is the first step of fiscal dominance, still without a name.
🟠 Geopolitical Panorama
🛢️ Middle East / Energy
The week began with hope and ended with a rejection. On Monday, Saudi Arabia restarted the East-West pipeline at low capacity, after it had been halted by drone attacks on September 13, and Brent fell to its lowest since September 8. On Wednesday, a projectile hit a cargo ship in Hormuz. On Friday, Iranian Foreign Minister Abbas Araghchi presented a seven-day plan in New York: fighting stops on all fronts, including Lebanon; the US lifts its blockade of Iranian ports and oil sanctions and unfreezes assets; the strait reopens on day seven; nuclear talks begin only after that. On Saturday, Trump rejected the plan. The same day, US Central Command (CENTCOM) struck three Iranian tankers, and explosions were reported near Qeshm Island.
On Thursday, the Houthis fired six ballistic missiles at the port of Yanbu and at Taif; all were intercepted, but Brent briefly spiked above $108. Yanbu is precisely the port through which Riyadh exports oil around Hormuz. Structural takeaway: the bypass is now as much a target as the main route, which is why the Brent-WTI spread widened to $12.7. America has its own oil; Europe and Asia pay the premium.
🇺🇦 Ukraine
The front is moving little, and not always in Moscow’s favor. On September 26, ISW noted Ukrainian advances east of Sloviansk and in western Zaporizhzhia, while Kyiv denies Russia’s claim to have captured the village of Maryne in Sumy region. Long-range strikes in both directions, however, intensified. Ukraine knocked out the Perm oil refinery, about 1,450 km from the border and Russia’s seventh largest by capacity, and also hit the Novoshakhtinsk refinery and the Iskra missile plant in Ulyanovsk. Russia pounded Kyiv three days in a row: on September 25 seven people were killed, injury counts vary between 46 and 59 depending on the source, ArcelorMittal halted steel production, and data centers and internet providers are being targeted.
Two concrete pieces of diplomatic news. After meeting Trump on September 22, Zelensky announced that Ukraine will get a license to produce Patriot interceptors, although production will not start for at least a year. Kyiv and Moscow confirmed that trilateral technical talks will resume in the United Arab Emirates, but there is no date. The EU, meanwhile, unlocked €6.6bn from the European Peace Facility that Hungary had blocked since 2023. The economic backdrop is grim: Ukraine’s finance ministry puts next year’s unfunded external financing need at $32.6bn, while the IMF’s baseline sees a $43.4bn gap. Two numbers, one conclusion: the 2027 war is not yet paid for.
🇨🇳 China / US
Xi Jinping came to Washington for the first time in eleven years, and Trump greeted him in person. The result was modest: the trade truce that lowers US tariffs and pauses China’s rare earth export controls was extended to January 10, 2027; a board of trade was set up for non-strategic goods; an AI safety channel was opened. CNBC counts roughly $30bn in reciprocal tariff cuts on non-sensitive goods. There was no breakthrough on Taiwan, chips or rare earths, the $14bn Taiwan arms package remains frozen, and the promised 200 Boeing jets are still being negotiated. Buying time? No, mutual dependence: neither side can afford a fight today, when the US borrows at 5 percent and China controls the raw materials without which neither drones nor missiles work.
🇷🇺 Russia / Sanctions
On September 24 the Russian government presented its 2027 draft budget: VAT rises from 20 to 22 percent, taxes on passive income go up, the deficit is 2.2 percent of GDP, and defense is the priority. The war is now paid for not only with oil but with every shopper’s receipt. In the Duma elections, United Russia won a record 349 of 450 seats. The EU, meanwhile, removed Alisher Usmanov and Mikhail Fridman from its sanctions list under pressure from France, Luxembourg and Slovakia, and a 22nd package is planned for October. Danish military intelligence warned on September 24 of a low but growing risk that Russia could launch a limited attack on a NATO country within months.
🇪🇺 European Politics
In Germany’s Mecklenburg-Vorpommern election on September 20, the Alternative for Germany won with 38.2 percent, while Chancellor Merz’s Christian Democrats, with just 4.9 percent, dropped out of the state parliament. In Berlin, the Left came first. Merz pledged to hold the coalition with the Social Democrats together and called the result a profound turning point. In France, Lecornu’s minority government will submit its 2027 budget in early October with €54bn in spending cuts; the vote is scheduled for November 17. Debt is projected to reach 121.7 percent of GDP in 2027, and analysts openly talk about the risk of the government falling.
In Hungary, Prime Minister Péter Magyar’s government is collecting dividends: the Commission proposes unfreezing another €4.2bn, and Budapest no longer blocks aid to Ukraine. Washington applied pressure on another front: the White House is weighing a 90-day diesel export ban, even though the US supplies about half of Europe’s imported diesel, and the Justice Department sided with Elon Musk in his case against a €120m EU fine. An ally? No, a supplier reminding everyone who sets the price.
🌍 Other
At the UN headquarters, Trump signed an Arctic security agreement with Denmark and Greenland allowing the US to expand military infrastructure on the island, and announced an oil deal with Venezuela. No date has been announced for an October OPEC+ meeting; seven members have been adding 188,000 barrels per day each month since August. That means little as long as oil cannot sail freely.
🇱🇹 Lithuania and the Baltics
- A first step toward a constitutional amendment. On September 22, the Seimas voted 99 to 13 in favor of amending Article 137, which would remove the ban on weapons of mass destruction and foreign military bases. Another vote is required. The same day, President Nausėda announced that a new rotation of about a thousand US troops is already on its way, although final confirmation from Washington had not yet come at the time.
- Minsk pushes from three sides. On the night of September 21–22, Vilnius airport was closed for three hours because of smuggling balloons, roughly the tenth time this year, affecting over 4,000 passengers; the foreign ministry delivered a protest note. The US is negotiating to buy Belarusian potash, and Prime Minister Mindaugas Sinkevičius admits Lithuania is more an observer than a player in the process. Belarus is also considering a radioactive waste repository in the Astravets district, about 50 km from Vilnius.
- Defense money is growing faster than oversight. A defense ministry staff party cost €47,559; the prime minister demanded a public apology, and Minister Robertas Kaunas admitted it was inappropriate. The ministry also proposes allowing the military to buy drones with Chinese components; the draft was sent back for revision. The Baltic states are asking the European Commission for €500m for counter-drone defenses.
- The state prepares for crisis, households borrow. The mobilization exercise “Vyčio skliautas 2026” (September 25 – October 3) has begun, and border municipalities openly admit a shortage of transport for evacuation. The prime minister told banks to ensure card payments work even offline. At the same time, the mortgage portfolio is growing 14.9 percent a year, the fastest since March 2009.
- The energy bill arrives with a lag. The energy regulator VERT forecasts heating costs will rise 13–25 percent this season, most likely around 23, because biofuel has become 40–50 percent more expensive over the year. The Bank of Lithuania puts this year’s inflation at 5.1 percent. This is Hormuz, delivered to the boiler house.
- Contours of the 2027 budget. The government must approve the draft by October 15. On September 22 the prime minister promised that the state’s 1.5 percent contribution to the second pension pillar will stay, even though his party colleague, Seimas Budget and Finance Committee chair Algirdas Sytas, proposed scrapping it. Lithuania submitted its last payment request, €1.1bn, from the Recovery and Resilience Facility.
- Latvia votes on October 3. Prime Minister Andris Kulbergs is seeking re-election; the main issues are airBaltic’s finances and Rail Baltica delays, with security in second place. Lithuanian Transport Minister Juras Taminskas says an airBaltic bankruptcy would not be a tragedy for Lithuania. In an LRT column, Linas Kojala calls AI the core of US-China rivalry and compares it to the nuclear arms race, proposing incident hotlines as a first step.
🌡️ Chart Thermometer
Outlook for 2–4 weeks
Base case: oil rebounds on Monday after Trump’s rejection, Brent returns to the 105–108 zone, and the 10-year reaches 5.25–5.30 percent unless the September 30 personal consumption expenditures price index (PCE) comes in below expectations. An October hike becomes almost certain. Gold stays below 4,400 while yields rise; bitcoin holds a 82,000–88,000 range.
What would invalidate it: a 10-year close below 4.96 percent would mean the bond sell-off is over and give gold room toward 4,400. Brent below $98 would mean the market believes in a real Hormuz deal. A weekly bitcoin close below 82,500 would turn this month’s breakout into a false one. An S&P 500 close below 7,600 would be the first sign that stocks have finally heard the bonds.
🎙️ What the Voices Said This Week
⚔️ Where They Disagree
Why 5 percent? Growth versus debt. Howell says yields are rising because of strong nominal growth and a Fed that is too loose, so bonds will soon be a buy. Marks, Gromen and Dale say the market is repricing US solvency: the deficit, the interest burden, refinancing. The difference is not academic. If Howell is right, yields will come back down when the economy cools. If the others are right, they will keep rising even as the economy slows, and then the Fed will be forced to buy. Two things will settle it: the September 30 PCE price index, and whether long yields keep rising even after weak jobs data on October 2.
Deflation or debasement. Snider, Zeberg and David Rosenberg see a policy mistake: the Fed is hiking into a supply shock, and it will end in recession and falling prices. Hayes, Pal and Gromen see the opposite: any crisis will end with money printing, because the debt is too large to be allowed to break. The interesting part is that both camps agree on the first step, something will blow up. They disagree on what comes after. Gromen’s formula settles the argument in his favor: hikes and cuts are both inflationary when debt stands at $40 trillion.
Bitcoin under hikes. Benjamin Cowen publicly admitted that his thesis that hikes would knock bitcoin down did not play out: every link came true (oil, yields, the hike, the dollar) except bitcoin actually falling. Pal says bitcoin will now outperform the Nasdaq; Zeberg expects euphoria and then a collapse. The market’s vote this week was clear: $2.4bn in fund inflows. Weekly closes above or below 82,500 will settle it.
AI investment. Hayes sees a demand collapse and a credit crisis, Howell an investment peak in 2027, Dale a boom lasting until 2028. This will be the decisive theme for the earnings season that starts in a couple of weeks.
🔄 Cycle Update
Howell’s liquidity cycle: peaked in late 2025, now in the late phase in which money moves from financial assets into commodities. This week’s data confirm it: gold and bonds fall, oil and copper hold. The only sources of liquidity are China and the Fed’s paused balance sheet reduction.
Zeberg’s recession model: leading index down since July, industrials have peaked. His clock says recession within 3–4 months, but first a final euphoric leg. This week’s PMI of 58.4 does not contradict him yet, because the price component signals overheating, not health.
Power cycle: the US is negotiating with China over time, with Iran over the strait, with Europe over diesel, with Denmark over Greenland. Everywhere the same pattern: no longer rules for all, but a deal with each party separately. This is a sign of a late-stage empire, when access is sold rather than guaranteed.
Bitcoin cycle: four-year cycle logic would have demanded weakness in 2026, yet bitcoin hit an eight-month high, and after this week year-to-date fund flows turned positive. Willy Woo wrote in early September that the four-year cycle may give way to a longer debt cycle. So far the data favor him.
Debt wall: US debt above $40 trillion, net interest costs above a trillion a year, and the 10-year refinancing at 5.2 percent. Every month at these yields makes next year’s budget more expensive. Fiscal dominance is no longer a theory; it is visible on the Fed’s balance sheet.
👁️ Watch Next Week
- Monday, oil and Iran. Futures will price Trump’s rejection and the tanker strikes. Tehran is waiting for a final answer through mediators. Brent above 106 would mean the week’s hope premium vanished in a day.
- Monday, EU defense ministers. They must give final approval to €6.6bn for Ukraine. A new objection from Budapest would show the veto was only postponed.
- Tuesday, Reserve Bank of Australia. A hike to 4.60 percent is almost fully priced. One more central bank on the tightening list.
- Wednesday, US PCE and quarter-end. In July, annual inflation on this measure was 3.7, core 3.3 percent. A higher number would make an October hike a formality. At quarter-end, watch money market stress and the Fed’s discount window.
- Friday, US nonfarm payrolls (NFP) and eurozone inflation. About 100,000 new jobs are expected. If the labor market weakens and long bonds still fall, it will be the strongest evidence of fiscal fear.
- Saturday, Latvia’s Saeima election. The neighbor’s political stability and airBaltic’s fate directly affect Lithuania’s connectivity and the regional security agenda.
- All week, “Vyčio skliautas”. The main exercise days are September 29 and October 3. What matters is whether the transport gaps turn into concrete government funding or stay in an exercise report.