The Rising Stakes of the Global Bond Rout

Andrew here. What does the bond market know that the stock market does not? And which one is right? Bond investors are clearly becoming more worried about the economy — and yet the stock market is showing almost no sign of that anxiety.

DealBook’s Bernhard Warner gets into all of the details and some of the implications for Washington and beyond. More below.

Higher for longer

Borrowing costs have been climbing for some time. But in recent days, long-rated bonds have hit multiyear highs, heaping pressure on governments, businesses and households.

Stocks and bonds are rebounding slightly on Wednesday. Yet the higher-for-longer debt narrative looks set to stick, weighing on even deep-pocketed corporate giants.

Worth watching: The Treasury Department is set to sell $16 billion in 20-year government debt on Wednesday. Tepid demand could add more volatility to the market, and pile pressure on Treasury Secretary Scott Bessent.

• With bond yields rising, Washington’s exorbitant borrowing needs have come into sharper focus, especially with the U.S. federal debt set to hit $40 trillion.

Bond investors are already spooked, including by inflation, surging government debt, aging demographics and newer concerns like a “climate sovereign doom loop.”

Governments are also increasingly competing with record corporate bond offerings — mostly tied to the A.I. construction boom — for investors.

• Exhibit A: Alphabet, Google’s parent company, raised $3.9 billion worth of bonds denominated in Australian dollars, according to Reuters, which cited a term sheet. The company set the coupon at 6.9 percent, a potential record, according to Bloomberg — and just two percentage points over the yield on 10-year Australian sovereign bonds.

On the bright side: Analysts note that the U.S. economy is growing robustly, and business conditions remain strong, which should keep investors in a buying mood.

Optimists say that as bond yields climb, more buyers will come in, pushing down yields and easing borrowing costs for everyone.

That said: Investors may sell off stock or cryptocurrency holdings to buy bonds, depressing those blocket clblockes. There are some signs of that in the spot Bitcoin exchange-traded fund market.

The irony: The latest bond market tremors occur as traders continue to dial back bets that the Fed will raise interest rates this year. That may come as little relief for borrowers.

HERE’S WHAT’S HAPPENING

Oil prices climb for a fourth consecutive day. Brent crude, the international benchmark for oil, rose to $91.70 as investors worried about the collapse of U.S.-Iran negotiations and a potentially protracted energy crunch. President Trump said on Tuesday that there were no talks underway or scheduled.

The U.S. backs off from a tariff fight with Canada. Trump said last night that he was granting a three-day reprieve on new measures against some Canadian exports, as the countries seek to make progress on a broader deal. (He also suggested the stalled Keystone XL oil pipeline project could be resuscitated, but offered few details.) Elsewhere: Beijing has started letting in small shipments of Nvidia’s H200 chips for its artificial intelligence companies, according to The Financial Times.

A Chinese robot maker soars in its market debut. Shares in Unitree, which makes A.I.-powered humanoid robots that perform manual tasks (and do impressive acrobatic flips), rose more than fivefold on Wednesday in their first day of trading. It’s the latest Chinese tech start-up to dazzle investors, and underscores Beijing’s early lead in the race to commercialize humanoid robots.

OpenAI’s work in progress

For much of this year, OpenAI has narrowed its focus to making inroads with business customers in a bid to catch up with Anthropic, its artificial intelligence rival.

OpenAI, the ChatGPT maker, has made strides toward this goal. But a new report suggests that the effort is still a work in progress.

OpenAI’s second-quarter growth trailed Anthropic’s, The Wall Street Journal reported on Tuesday, citing unnamed sources:

• Revenue grew to $6.7 billion during the period, up nearly 18 percent quarter on quarter.

• Operating loss, which factors in stock-based compensation, swelled to $12.3 billion in the quarter, up from $9.3 billion in the three months before.

Compare that with Anthropic, which more than doubled revenue to $11.6 billion in the same quarter, The Journal added. (DealBook previously reported that the A.I. lab was set to turn a small operating profit during the period, though it’s unclear whether that could be sustained for the whole year.)

How much progress is OpenAI making?

• The company saw run-rate revenue from business customers grow 32 percent in July from the previous month, DealBook has reported, outpacing its overall run-rate revenue growth.

• We’ve also reported that Sarah Friar, OpenAI’s C.F.O., told investors that most of the company’s revenue now comes from business customers.

• OpenAI has become more popular than Anthropic again on OpenRouter, an A.I. model marketplace for developers, as The Information notes.

Amping up growth is a key priority of Greg Brockman, an OpenAI founder and its president, who is hiring new executives to focus on improving the company’s business and product teams.

Step back: The race for business supremacy comes as both companies prepare for I.P.O.s — Anthropic’s as soon as this fall, and OpenAI’s most likely next year. Both want to demonstrate strong business growth to prospective investors, especially as their costs are expected to soar for several more years.

Speaking of which, Anthropic is taking additional steps to prepare for an initial offering, including by setting up a multi-clblock stock structure that gives its founders outsize control (according to The Information) and expanding its available credit line (according to Bloomberg)

Quote of the day

“Hook the users. Hold them for as long as they can. Harvest their data. Hide the truth from the public when making public statements.”

Megan O’Neill, a California deputy attorney general, at the start of a trial over whether Meta designed its social media platforms to become addictive to young people. A group of states, including California, is seeking about $200 billion in penalties and changes to the company’s platforms.

Meta said that it had put in safeguards to protect young users and that it was truthful to consumers.

ABC goes on offensive against the F.C.C.

ABC opened a new front in its battle with the Trump administration on Tuesday when it sued the F.C.C., accusing the agency of violating the First Amendment in its efforts to possibly strip the network’s local broadcasting licenses.

In April, the agency called for an unusual early review of ABC’s licenses that it said was related to an investigation into the network’s diversity and inclusion practices. The move came after Jimmy Kimmel, its late-night host, angered President Trump with a monologue joke. ABC, which Disney owns, argued in its legal complaint that the F.C.C. was retaliating for the network’s coverage and content.

ABC also argued that the F.C.C. could create onerous obstacles for the network even without proving that ABC had violated the law, Jim Rutenberg and John Koblin report for The Times:

Under F.C.C. rules, Mr. Carr has the power to run the network through several painful steps. He could, for example, call for a hearing where he or other F.C.C. commissioners could grill network executives about their operations and their editorial decision-making.

ABC said in its legal complaint that such a hearing would be a “charade” and “performative.” The network said the F.C.C. could also slow-walk such a hearing, or delay any ruling from it, leaving ABC in limbo while its editorial decisions remain under intense scrutiny and litigation costs skyrocket. …

The suit also highlighted what the network called onerous and inappropriate demands. ABC said it had supplied the F.C.C. with over 13,000 pages of doblockents in response to some 600 requests. ABC said the agency had requested communications between producers and hosts on “The View,” a network talk show, as well as an itemized list of political donations from some employees, including in its news division.

In an interview on Tuesday, the F.C.C. chairman, Brendan Carr, called the lawsuit “meritless,” and said that the agency had not decided how to proceed and denied that it was violating ABC’s free speech rights.

THE SPEED READ

Deals

• European countries are staking more moonshot start-ups to compete against the U.S. and China. (NYT)

• The European fintech giant Revolut has reportedly proposed increasing the amount that Nik Storonsky, a Revolut founder, can borrow against his stake in the company by fivefold, to $250 million. (FT)

• Kalshi is expanding its offerings of perpetual futures contracts — “perps,” for short — to equity indexes. Could individual stocks be next? (CNBC)

Politics, policy and regulation

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