The Trump effect: Why cracks are widening in financial markets

September 24, 2026 — 9:59am

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There’s a rapid shift underway in the global cost of capital, with yields in the world’s key bond market soaring overnight.

The US bond market provides the reference points for global debt and developments in that market are undermining the finances of governments worldwide, while adding to the pressure on companies and households.

Yields in the US Treasuries market have been edging up all year, driven by rising US government deficits and debt and an inflation rate kept stubbornly high by Donald Trump’s war in the Middle East, his trade wars and the boom in artificial intelligence-related investment.

On Wednesday in the US, the day started badly for the market when there was a sell-off in European bonds in response to another surge above $US100 a barrel in oil prices, after Iran responded to Trump’s threat at the United Nations to “annihilate” the country by saying it wouldn’t relinquish control of the Strait of Hormuz unless and until the US lifted its sanctions.

The oil price, which was below $US100 a barrel on Tuesday, is now trading around $US103 a barrel.

The selloff accelerated after the mid-morning release of the S&P Global flash US Composite PMI (purchasing managers) Output Index, which showed an unexpected jump in manufacturing and service sector activity, as well as a surge in the prices of business inputs.

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Stephen BartholomeuszSenior business columnist

Senior business columnist

Then, at 1pm (New York time), a $US70 billion auction of five-year Treasury notes experienced weak demand, selling at a yield well above traders’ expectations. “Primary dealers” – those who are forced buyers at auctions – ended up with unusually large allocations.

Even the announcement by US Treasury Secretary, Scott Bessent,........

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