MORNING BID AMERICAS-Bonds' reality check

The massive AI buildout certainly shows no sign of slowing, with Broadcom's earnings on Wednesday highlighting Big Tech's insatiable appetite for AI infrastructure. The eighth-largest company in the world by market cap said it now expects AI chip revenue to double to roughly $230 billion in fiscal 2028. Still, the company's shares slumped after this release as its fourth-quarter outlook disappointed. Its share price is only up about 3% this year, trailing the broader SOX chip index significantly as the firm continues to be dogged by AI spending concerns and rising competition. In other Big Tech news, Nvidia on Thursday announced that it was acquiring popular developer platform Hugging Face for $13 billion, one of the chip giant's biggest deals, hinting at the growing belief that open-source AI models could drive future demand. Over in FX markets, the yen is up around 2% this week, trading in the 156-per-dollar range and heading for its strongest week in more than a month. This likely speaks to rising bets for Bank of Japan rate hikes, as the march higher in policy rates continues globally. On that front, the Reserve Bank of New Zealand on Wednesday increased interest rates by 25 basis points to 2.75%, as expected. Meanwhile, renewed fighting in the Middle East pushed up energy prices yet again, adding fuel to the bond market fire. Brent crude spiked above $97 a barrel on Thursday before paring some of those gains, but the global oil benchmark remains on track for a more than 6% rise this week. More concerning than that, though, is the refined products crisis, as gasoline prices and diesel spreads remain highly elevated. Bessent was correct, however, when he noted that these bond market woes are a global phenomenon. Ten-year Japanese government bond yields eclipsed 3% for the first time since 1996 this week, while Germany's 10-year Bund yields hit their highest point in 15 years. Additionally, 30-year British gilt yields reached levels not seen since 1998, and French 30-year bond yields spiked to an almost two-decade high. Some of these moves have since moderated, especially following Federal Reserve Governor Chris Waller's interview with Reuters on Thursday, in which he said that the central bank should "give disinflation a chance" and consider holding rates steady. Still, given the host of catalysts for the latest bond tremors, few believe we've seen the last of them. Speaking of catalysts, Treasury Secretary Bessent was also correct to point out that the U.S. 10-year term premium – the additional yield investors demand to hold longer-dated debt instead of rolling over short-term paper – is actually lower than in Japan or Germany, suggesting this rout is not being driven primarily by fears about eroding U.S. fiscal conditions. Instead, the sharp moves may be a recalibration to a higher neutral rate, as the AI investment boom and other forces put upward pressure on the rate that neither stimulates nor inhibits economic growth. Are the vigilantes back? Bond yields spiked across developed markets this week, with many hitting multi-decade highs, as rising deficits, elevated inflation and a surge of AI-driven corporate debt issuance left traders demanding higher compensation for the risk of holding longer-term government debt. Far from a moral crusade by fixed income investors seeking to influence fiscal policy, this instead looks like a logical response to the economic facts on the ground, including the dawning reality that borrowing rates in many large markets are likely going to be higher for longer. Over the past week, the benchmark U.S. 10-year Treasury yield surged to roughly 4.80%, hitting its highest point since President Donald Trump returned to the White House early last year. This undid any positive impact from Treasury Secretary Scott Bessent's bond-buying announcement two weeks ago. Staying in energy, the Trump administration unveiled a plan on Monday that would give Washington a 35% equity stake in private oil firm North American Blue Energy Partners (NABEP). The arrangement would make NABEP the world's second-largest private oil company by reserves, according to the White House. The White House argues that the deal will enable Washington to refill its depleted strategic petroleum reserves, reduce fuel costs and promote the "revitalization" of U.S. manufacturing and energy. But the proposal has already drawn fierce criticism from Venezuela's opposition and Democrats in the U.S., with some comparing it to modern-day colonialism. What's clear is that the proposal carries significant legal and logistical risks, including hampering the recovery in Venezuelan oil production that it's seeking to encourage. Nevertheless, executives from oil majors including Chevron and Eni met in Caracas on Wednesday, alongside interim President Delcy Rodríguez and U.S. Energy Secretary Chris Wright, to sign a wave of new energy agreements, enabled by sweeping petroleum sector reforms approved in January following Washington's ouster of former President Nicolas Maduro. As we enter September, the marquee event will be the next Fed meeting on September 15-16. Despite Governor Waller's comments to the contrary, rates markets still believe there's a roughly 75% chance that Chair Kevin Warsh will be overseeing the first U.S. rate hike since 2023. That's up from around a one-in-three chance before Warsh's "hawkish" speech at Jackson Hole last Friday. Warsh scored a relatively easy win in Wyoming by reaffirming his commitment to the Fed's 2% inflation target and signalling a willingness to raise the policy rate if warranted by the economic data. To fully restore market credibility, though, the real work will start this month. Finally, Warsh and his colleagues will closely scrutinize today's nonfarm payrolls figures, though they're unlikely to move the needle too much given that inflation – not the jobs market – appears to be the key focus. The consensus expectation is for August payrolls to rebound by 56,000 after July's 23,000 decline. Morning Bid will be off for Labor Day. Enjoy the long weekend!

MORNING BID AMERICAS-Bonds' reality check

AI spending, energy prices and the Fed ahead

Global bond markets and central bank signals

Bond yields reset higher across developed markets

Venezuela energy plan and the upcoming Fed meeting

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