Bond rout pushes US mortgage rates past 7%

0:00This episode is brought to you by Hard Lessons, a Morgan Stanley podcast. Iconic investors like Stan Druckenmiller, John Gray, and Rick Reeder break down calls that worked. I knew that this stock would go up for at least two or three years and go up a lot. Ones that didn't. I quite frankly thought the company could have reversed course. They didn't. And what they learned in between. When you buy everything and it goes up, it doesn't train you to be a great investor. It's these hard lessons that make all the difference. Listen to Hard Lessons wherever you get your podcasts. Good morning from the Financial Times.

0:33Today is Friday, September 25th, and this is your FT News Briefing. Donald Trump rolled out the red carpet for Xi Jinping, and the UK wants some of the business perks of being European. Plus, we look at what the bond market sell-off means for you. I'm Sonia Hudson, in for Mark Filipino, and here's the news you need to start your day.

1:04Chinese leader Xi Jinping began his first visit to Washington in more than a decade yesterday. U.S. President Donald Trump said the two made progress on issues, including a, quote, more balanced trading relationship. The nations extended their trade war truce until January. Xi said that China and the U.S. must, quote, coexist in peace. Here he is speaking at the White House through an interpreter. China and the United States, as two major countries, stand to gain from cooperation and will both lose in confrontation. We do not need to avoid mentioning competition, but our competition should be a healthy one and should be kept within bounds.

1:50The visit also comes as the Chinese military continues its assertive activity in the South China Sea. The two leaders were expected to discuss U.S. and Chinese policy towards Taiwan. But there was a breakthrough in panda diplomacy. Xi announced that China would send two giant pandas to the Atlanta Zoo soon.

2:16The EU has laid down an ultimatum for the U.K. Hey, if you want to be part of our Made in Europe subsidies program, you got to match our tariffs against China. That's according to people familiar with the discussions. But that move could be tricky for the UK. Peter Foster is the FT's World Trade Editor. He joins me now. Hi, Peter. Hi. OK, tell me more about this Made in Europe label that is at the center of the standoff. So the EU is trying to create a world where EU-based manufacturers in autos, in energy, in key supply chains, chemicals, get preferential access to EU subsidy schemes. Now, the UK, 50 % odd of its trade is done with the EU, is worried that if it's not treated as if it's European, then its automakers and chemical firms and nuclear energy providers are going to find themselves shut out of those supply chains.

3:13And so the EU goes, well, OK, that's fine. But you remember you left the EU and you're outside the EU single market. You don't want to have free movement of people. So in that case, it's a bit difficult to make you part of the family if you're not going to follow the family rules. OK, so Brussels is basically saying if you want to join this made in Europe label, you have to match our tariffs. Why wouldn't the UK want to do that? Well, here's the rub. since Brexit. One of the advantages of Brexit was the UK had its own trade policy. And so, for example, back in 2024, the EU put tariffs on Chinese electric vehicles of up to 45%, depending on where they came from.

3:53The UK didn't do that, which meant that Chinese EVs came into the UK cheaper and more easily. And so the UK is in the process of trying to, for example, get the Chinese auto firms to invest and do tie-ups with some of the UK-based firms and UK-based plant. So, you know, the price of entry to the EU's made in Europe scheme is that we've got to put tariffs up on the Chinese. Then that's a problem for our relations with China. Peter, it sounds like the UK kind of wants it both ways here, right? You know, it wants to be included in the European market, but at the same time, it doesn't want to uphold Europe's rules on trade with China.

4:33Is that position tenable? Is it going to work? I think the short answer to that is probably not. One UK official said to me, it's difficult to say that we want to be inside, part of Fortress Europe for the Made in Europe scheme and yet have trade policy, trade defence measures that appear to undermine that fortress. There is frustration, I think, in Brussels that the UK on the one hand is asking for this exemption to be treated as if it's European and yet isn't really yet prepared to follow the logic of that request, which is, well, in that case, you're going to have to harmonize your trade defense measures with the EU.

5:10And we should say the European Commission declined to comment on this. But just taking a step back, what does this all say about Brexit's promise of opening up trade for Britain? I think what it says about Brexit's promise is that it's getting harder and harder to deliver. If you go back to 2020, when the then British Prime Minister Boris Johnson made his big speech about buccaneering Britain in the Greenwich Observatory. He promised a world in which the UK would be in the vanguard of free trade. But since 2020, what we've seen is the US, China and the EU put up their trade barriers. And that leaves the UK, a small, medium-sized country, to be piggy in the middle, not part of a big block, increasingly squeezed, increasingly finding it difficult to keep all sides happy.

5:59And I think what it says is that coming down the tracks increasingly are difficult choices that risk upsetting one or other of those parties. That's the FT's Peter Foster in London. Thanks, Peter. My pleasure.

6:18It's been a wild week for the bond market. A major sell-off has gotten even worse, which means yields have surged to levels we haven't seen since the lead-up to the global financial crisis. Now, this isn't just a problem for bond investors or governments. This could also be a problem for you if you want to buy a car or a house. Here to talk about all this is the FT's U.S. Markets Editor, Kate Duguid. Hi, Kate. Hi. So, Kate, everyone panicked when bond yields in the U.S. reached 5%. And yesterday, the yield on the 10-year U.S. Treasury hit 5.21 percent. Why are people freaking out? So the rise in yields that we have seen indicates to us that investors in the Treasury market believe that inflation is going up.

7:09They believe that interest rates are going to be higher and that borrowing costs are going to continue to rise in the near term. What that means is that for the ordinary American, mortgage rates will rise. It means that borrowing rates across credit cards, autos, whatever it may be, will also rise. It means that it will cost companies more to borrow money, and it will also cost the government more to borrow money. So Kate, some of the numbers that we've mentioned have been on these longer-dated U.S. treasuries, but there's a whole range of U.S. government bonds. What does each part of that market tell us about the economy?

7:47Sure, it's a great question. So I would break it into the short part of the market, the medium term part of the market, and the long term part of the market. The short term part of the market tells us what the Fed is going to do next. So if bond yields, which move inversely to prices, if those are going up at the short end, it means that investors think that the Fed is going to continue raising interest rates. In the middle of the curve, it is a signal a little bit about Fed policy a little bit further out, but also about the growth outlook for the U.S. And then at the very long end, like the move in like a 30-year yield, say, gives us information about where investors think inflation will be.

8:30Now, all three of those sections have been rising. Investors think that inflation is going to keep going up. They think the economy is super hot and it's going to stay that way for a little while. And as a result of those things, they believe that the Fed is going to have to continue raising interest rates. And we know what happens when the Fed raises interest rates. It can put a damper on growth. It can constrain borrowing. Generally, what it does is it just makes financial conditions a little bit tighter for everyone. Now, you mentioned that this sell-off is playing out in the housing market.

9:04Tell me a little bit more about that. So the housing market, you know, we see that mortgages on Thursday topped 7%, I think, for the first time in two years. So it makes housing less affordable. And it also means that people are less likely to move out of their existing homes. If they have a 2 % mortgage that they got back in 2021 or 2020, they're not going to want to move. And so there's a bit of stagnancy in the housing market, as well as a higher barrier to entry. Is there any indication that this U.S. government bond sell-off is going to end anytime soon? No, not really. It seems like for the moment we're on an upwards trajectory.

9:46One thing that kind of indicates that is that we have baked into like a very particular part of the market. We have expectations of at least another three interest rate hikes until the end of 2027. If this is sort of the beginning of a Fed cycle rather than just like a one-off interest rate increase, if this is the beginning of a cycle, it means that we should expect interest rates to keep rising for a little while yet, which will add more pain onto the U.S. economy. Kate Duguid is the FT's U.S. Markets Editor. Thanks, Kate. Thank you.

10:24Israeli Prime Minister Benjamin Netanyahu took the stage at the U.N. General Assembly yesterday. Dozens of foreign officials booed him and left the room. Order in the hall, please. Netanyahu called them moral cowards. He was pointing the finger at Europeans, Arabs, and others who have criticized Israel's war in Gaza. And Netanyahu said the war in Iran showed that those countries are hypocrites. In defending itself, Israel is also defending many of the countries whose delegates just left this hall. It's hard to imagine more mind-blowing hypocrisy. Palestinian President Mahmoud Abbas also spoke at the UN yesterday.

11:08He called on the world to take action to stop the Israeli government's seizure of Palestinian land. Here he is speaking through a translator. Settler terrorism is escalating under the protection of the occupying forces, while the crimes of land theft, home demolition, checkpoints, and raids continue under a system of laws, measures, and practices all built on racial discrimination, ethnic cleansing, and state terrorism. Abbas said that means the possibility of a future Palestinian state is quickly disappearing.

11:49Before we go, an American sandwich chain thinks the cold and rainy UK is the perfect market for their hot sandwiches. Jersey Mike's is opening 400 stores in Britain. Now, the UK loves a good sandwich. The boxed ones are already a big business, but they're sold out of a refrigerator. Jersey Mike's is hoping the success it's had in the US will translate across the Atlantic. The sandwich shop is the second largest sub-sandwich chain in North America. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news.

12:32The FT News Briefing is produced by Safia Efmed, Katya Kumkova, Josh Gabbert-Dwayan, and me, Sonia Hudson. Our editor is Mark Filipino. Our show is mixed by Kelly Gary and Sam Giavinko. We get help from Peter Barber, Michael Lello, David Da Silva, and Gavin Kallman. Our executive producer is Topher Forges. Flo Phillips is the FT's global head of audio. And our theme song is by Metaphor Music.

13:10Kate Duguid: The new episode of The Next Five is all about CFOs in an AI world. Patrick Villanova at Blackline joins me. CFOs are inherently risk averse. We have to be very prudent when we implement AI. As does Olya Brasi at Highgate. My rule is no human owner means no go live. And Gina Gutsight at FTI Consulting. There's no excuse. You're the CFO. You're signing the name to the financial statements. Listen to The Next Five wherever you get your podcasts. Enjoy. Capital raising is being redefined in real time, from macro disruptions and shifting investor expectations to AI-driven demand and the rise of private credit.

13:50Kate Duguid: When headlines can tilt markets overnight, how can companies stay on course? Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts.