Bubble Trouble: The Contrarian’s Curse—And Opportunity Bubble Trouble: The Contrarian’s Curse—And Opportunity

In 2020, the bond market awoke from a decade-long slumber and moved long-dated bonds higher, in what we call a curve steepening, even whilst short-end rates were (possibly) at paradigm lows. It was easy to look at this steepening move as being driven by the quite justified cutting of interest rates in response to the global pandemic and the seizure in the global economy that took place, and therefore to stop there and ignore any deeper or more subtle message.

The increasing liquidity squeeze in the Kingdom of Saudi Arabia’s (KSA) financial system has been causing heightened levels of debate for some time. A growing economy and the financial demands of the mega-projects that are under way are hoovering up cash faster than the domestic system can supply it. For context, recent reports suggest that the new city of NEOM could cost $8.8tn to build, which is around 25 times KSA’s annual budget.

Governments are perched atop a mountain of debt, and the question of how to reduce it has become one of the most pressing long-term challenges for the economy. Broadly speaking, there are three ways to deal with debt: A sovereign default is theoretically possible, but for a country like the US, which has full control over its monetary system, this is extremely unlikely. Default is economically destructive, politically toxic, and would undermine the very foundation of the global financial system, given the role of Treasuries…

I work as a corporate credit analyst at M&G and my job is to assess the credit risk of a borrower, as measured by its expected loss. OK, that is the theory; but in practice, what makes credit possible to begin with? The answer is in the word itself: credit. And although I know the answer, I decided to test my new Copilot assistant.

We’ve spent nearly two decades on this blog exploring the economic outlook, and history shows that this is especially relevant for active bond managers. Currently, risk markets are priced for a benign economic scenario. Credit spreads are historically tight, equity valuations are elevated, and interest rates are on a downward path as central banks unwind tight monetary policies to keep growth on track. The global economy appears healthy, and markets seem to have rediscovered their appetite for risk. But as always, we believe it’s worthwhile…

The US dollar has long held its position as the world’s dominant reserve currency, underpinning global trade and serving as a safe haven during periods of financial stress. This stability provided emerging markets (EM) with a reliable anchor for external borrowing, with the modern EM debt market beginning to take shape following the introduction of Brady bonds in 1989.

Popularised after the Second World War, the idea of the American Dream has long centred around the idea that anyone, from any background in the United States, can achieve prosperity and success. For nearly 75 years, this idea has often been symbolically represented by a middle-class family with two dogs, two kids, an American-made car and a suburban home with a white picket fence. While the “Modern American Dream” continues to include pets and children (increasingly more pets than children) and an automobile (now more evenly split between American pickup trucks, electric vehicles, and various international brands), one piece of this dream is becoming increasingly unattainable for the average American: owning a home.

We’ve all heard the arguments – “AI will supercharge the economy!” versus “No, AI is going to steal all our jobs!” The reality lies somewhere in between. Generative AI1 is a powerful tool that will boost productivity, but it won’t trigger mass unemployment overnight, and it certainly isn’t Skynet (if you know, you know). The International Monetary Fund (IMF) estimates that “AI will affect almost 40% of jobs around the world, replacing some and complementing others”. In practice, that means a large portion of workers will see some tasks automated by AI, but not necessarily lose their entire job. However, even jobs heavily exposed to AI still require human-only inputs and oversight: AI might draft a report, but you’ll still need someone to fine-tune the ideas and make the decisions.

Tariff headlines are designed to provoke and grab attention, with striking percentages quoted that appear to signal President Trump’s latest stance, framing the narrative around which country stands to win, and which to lose.

On the news of the Oasis reunion almost a year ago, my colleague Joe Sullivan-Bissett previewed the tour with some interesting historical analysis around Oasis and periods of volatility. Roughly 12 months on, I can confirm that Wednesday 30th July 2025 was the best night of my life, being one of the lucky thousands to see Oasis perform at Wembley Stadium. As I reflect on the two hours of back-to-back bangers, I realise the subtle references to credit markets that lie within the songs.