MARKETS IN A NUTSHELL — FOR AUGUST 2026

America’s national debt surpassed an eye-popping $40 trillion last month. The country still runs a budget deficit of around 6% of GDP, unusually large for an economy that is growing. Interest on past borrowing now consumes more than half of the shortfall. The US is not alone in its debt troubles. Bond investors are taking notice globally.

The pressure is showing up in bonds with the longest maturities. Last month, yields on 30-year US Treasury bonds rose to their highest level since 2007. Japanese ten-year yields reached 3% for the first time in three decades, while 30-year rates are now close to an all-time high. Long-term borrowing costs also climbed across Europe towards their 2008 highs, while UK yields moved above them. The common problem is sticky inflation and persistent government profligacy.

Washington would of course prefer for government borrowing costs to come down. Treasury Secretary Scott Bessent stepped up purchases of long-dated government bonds in August, hoping to push yields lower. The effect on long-bond yields was fleeting. The dollar weakened and scarce assets from gold to crypto surged, breathing fresh life into the debasement trade.

Gold bullion and platinum both rose by double digits in August. Energy shares gained strongly and are now up by almost half this year. Materials stocks also advanced. At the other end of the market, utilities and listed property fell, as higher long-term rates weighed on valuations. After several months in which artificial intelligence dominated market leadership, other parts of the market now had their turn.

AI itself remains a huge investment story. Big technology companies are expected to issue some $250 billion of long-dated bonds this year to fund the AI build-out, adding yet more supply to an already crowded bond market. The boom is drawing heavily on power, memory chips and other scarce inputs. Some of that demand is now feeding into prices.

The US central bank has little room for comfort. America unexpectedly lost jobs in July and headline inflation eased only slightly. Yet the Fed’s preferred inflation measure is running hotter, with technology-related prices among the pressures. The Iran war is still working its way through fuel and transport costs too. At the Jackson Hole symposium of central bankers, Fed Chair Kevin Warsh struck a hawkish tone, making clear that inflation remains the Fed’s big worry.

Stock markets took all this remarkably well. Global equities rose in August and emerging markets did slightly better. Precious metals, energy and materials found favour, while some of the year’s more crowded AI trades lost ground. South African shares mostly rode the global rotation. Resource shares surged by about a quarter during the month, while financials and industrials fell. The rand strengthened as the dollar weakened broadly. 

The flagship Foord International Fund had a stellar month, rising nearly 8% in US dollars. The fund was buoyed by its precious metals and energy holdings, with stock-specific performance aiding gains. The Foord Global Equity and Asia ex-Japan Funds performed in line with the market. In South Africa, the stronger rand pared gains from offshore assets. The Foord Flexible Fund performed well, but the rest of the suite lagged peers owing to their more judicious resource weightings.

For years, investors were willing to lend to heavily indebted governments at unusually low long-term rates. That is now changing quickly. Yields are rising as inflation, government borrowing and the sheer volume of debt demand a higher price. We have long been wary of long-term bonds for those reasons. Bond markets are starting to come around to the same view.