European Central Bank President Christine Lagarde dismissed rumors of her early departure while announcing a rate increase to 2.5% to combat inflation driven by rising energy prices. The ECB has raised its inflation forecast for 2027 to 2.5% and 2028 to 2.1%, but the central bank also has raised economic growth forecasts for 2026 and 2027. Speculation about Lagarde's future persists, with her not ruling out leaving before her term ends in 2027.

A sell-off in long-term US debt has reverberated through global markets amid Middle East tensions and rising oil prices, heightening expectations for a US Federal Reserve rate increase. Thirty-year US bond yields have reached a nearly 20-year high of 5.36%, while Brent crude hovered near $106 per barrel. The situation has led to a rise in government bond yields in Asia and Australia, and a drop in Asian stock markets.

US Treasury yields rose after the US Treasury Department bought $5.2 billion of longer-term bonds in a buyback operation, less than the $6 billion maximum. Global bond markets sold off as oil prices neared $110 per barrel following geopolitical tensions involving Iran, but prices have since eased with reports of potential negotiations for access to the Strait of Hormuz. Investors are closely watching upcoming US inflation data, which could influence the US Federal Reserve's decision on interest rates.

US Treasury Secretary Scott Bessent expressed confidence in the US Treasury market's resilience, emphasizing that it remains in "very good shape" despite recent volatility. Bessent pointed to strong results from recent auctions and noted US Treasuries' outperformance compared to other markets. He acknowledged the recent surge in yields but attributed much of the movement to external factors, such as the correlation with energy prices and geopolitical tensions, rather than structural weaknesses in the market.

The UK economy surpassed expectations in July, with GDP rising 0.4%, driven by strong performance in the artificial intelligence sector, according to the UK Office for National Statistics. This marks the third consecutive month of better-than-expected growth, positioning the economy for a stronger third quarter.

UK Chancellor John Healey might need to enact an emergency budget with spending cuts and potential tax increases to address rising government bond yields, which have reached their highest levels in decades. The surge is attributed to Middle East tensions and inflation concerns, with the two-year gilt yield at 4.72%, the 10-year at 5.3% and the 30-year nearing 6%.

Foreign exchange dealers warn that the popularity of the emerging-market carry trade, fueled by borrowing US dollars, could face a sharp reversal if the dollar strengthens. The Bloomberg FX emerging markets carry index has risen 11% since September 2025, but dealers highlight the risk of a sudden dollar rally, possibly driven by the tech sector, which could force a rush into US assets.

US Senate Republicans have unveiled a revised Clarity Act in 2026, incorporating over 114 provisions requested by Democrats. The new 630-page bill aims to provide comprehensive federal regulation for the crypto industry. Changes address concerns about stablecoin rewards, illicit finance, and ethical guidelines for public officials involved in digital assets. Despite these updates, the bill still faces hurdles.

The latest data from the Bank for International Settlements over-the-counter (OTC) derivatives statistics shows an increase in notional outstanding of OTC derivatives during the second half of 2025 compared to the same period in 2024. Notional outstanding rose across all major asset classes, including interest rate derivatives (IRD), foreign exchange, equity and commodity derivatives. Click here to read the paper.

ISDA has expanded its SwapsInfo website to include data on US-reported foreign exchange derivatives, further increasing transparency in the over-the-counter (OTC) derivatives market. Click here to read the press release.

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