Borrowing costs hit multi-decade highs

0:02Good morning from the Financial Times. Today is Wednesday, August 19th, and this is your FT News briefing. Insiders say Iran is eyeing military targets in Europe, and this week's global bond sell-off could be just the beginning. Plus, some of Donald Trump's attacks on renewable energy have backfired on him. I'm Sonia Hudson, InfoMark Filipino, and here's the news you need to start your day.

0:43People close to the Iranian regime tell the FT that Tehran could expand its war with the U.S. beyond the Middle East. Two regime insiders say that if Washington escalates, Iran has considered attacking U.S. military targets in southeastern Europe. So far, Tehran has retaliated primarily against American allies in the Gulf. The threat to expand the war outside the region reflects a defiant mood in Tehran. Peace talks have stalled for weeks, and many in the Iranian regime see a return to war as inevitable.

1:24A global bond sell-off continued yesterday, and long-term borrowing costs across major economies hit levels not seen in decades. So is this the beginning of a new era of higher borrowing costs? Here to tell us is the FT's Emily Herbert. She covers markets. Hi, Emily. Hi, Sonia. So first off, why are we seeing the sell-off? This sell-off at the long end of the government bond markets, it's been going on for a few trading sessions now, and there seem to be a few different things behind it. I think partly it's because oil prices have gone higher again. There's little sign of a U.S.-Iran deal, which would bring oil prices back down.

2:05And so investors are once again worried about inflation, and this always makes government bonds sell off, which pushes yields higher. At the same time, investors are worried about government debt levels again. There's been a bit more chatter about this in the market recently. The US national debt is closing in on$40 trillion. So in very simple terms, if there's a bigger chance that the government won't be able to pay them back, they do demand extra yield on the bond before they will lend the government that money. Right. And yields move inversely to prices. But Emily, we've also seen big tech companies using bond markets to finance all this AI spending that they're doing.

2:47How big of an impact is that having on bond markets? Yeah, I think that is having an impact. And actually, some of the investors that I've been talking to this week seemed to think that that was maybe more what was determining the timing of this sell-off. After all, inflation and government deficits, they've all been worries for the market for months and months already. But we're seeing more bonds, especially long-dated bonds, come into the market from these tech companies who are trying to raise money for their AI spending. This is effectively competing with the long-dated government bonds for attention in the market.

3:21So basically, there's more bonds in the market. Some of them are government bonds, some of them are corporate bonds from these big tech companies. So there's just more supply. So more supply, not so much demand means that prices go lower and yields go higher. Do you think that this sell-off is likely to continue? I think looking ahead from here, there's no real reason to think that this weakness in longer dated government bonds will stop. These huge debt burdens on governments and the kind of worries about inflation, as well as this supply-demand dynamic for government bonds, Those are all long-term trends which aren't really going anywhere anytime soon.

3:59I think probably if we got some good news in the U.S. around negotiations, that could offer a bit of short-term relief to bond markets. But ultimately, the long-term causes of this weakness aren't going anywhere anytime soon. So, Emily, if this sell-off continues and borrowing costs keep going up, which seems like that's the direction that we're headed in, what would that mean for global markets? I mean, yesterday we saw U.S. chip stocks take a hit too, and the tech-heavy Nasdaq fell as much as 1.6%. Yeah, this matters for governments because ultimately it means that when they issue debt, they have to pay higher borrowing costs on that debt.

4:40This only adds more cost for the government in interest payments, which makes the debt problem itself grow further. And that sends bond yields higher, so on and so forth. So some investors have said they are worried about this just grinding on because of the kind of self-fulfilling cycle of it all. Other people also said it could have a knock-on effect for the stock market because not only is it pushing up borrowing costs for companies as well, but when investors can get a higher yield for buying a government bond, sometimes this can take away some of the incremental demand in the market for stocks.

5:13So if the sell-off deepens further, I think there is a risk that this really hits the stock market rally as well. Emily Herbert covers markets for the FT. Thanks, Emily. Thank you.

5:30Revolut is thinking about majorly increasing the amount CEO Nick Staronsky can borrow against his stake in the fintech. And by majorly increase, I mean fivefold to$250 million. dollars. Europe's most valuable startup wrote to investors last week asking for approval. This is all according to documents reviewed by the FT. The proposed changes come as Revolut's valuation is surging, and with it, Staronsky's personal fortune. He's now one of the UK's richest people. Revolut said that as it continues to grow, it makes changes that, quote, ensure our corporate governance and administrative provisions reflect the current scale and valuation of the business.

6:22U.S. President Donald Trump has spent his second term cracking down on renewable energy, but that effort has produced some surprising results. 2026 is on track to be a record year for building these types of projects. That's according to data from S &P Global Energy. Here to tell us why is the FT's Martha Muir, Hi, Martha. Hey, Sonia. How's it going? It's going well. So tell me more about what Trump has done to try to slow down green energy during his second term. Yeah. So from the very start, we knew that Trump was going to try and move against the industry because he has a very intense personal dislike of wind power.

7:02He hates the way that it looks. And so going into his landmark, one big, beautiful bill, we knew that he was going to shred the tax incentives that Joe Biden put in place for solar and wind projects. The other thing his administration has done is interfere with permits for projects on federal lands. Solon wind projects on federal lands require the personal sign-off of Interior Secretary Doug Burgum, and he's used national security reasons to delay approval for over 150 onshore wind projects, saying that they interfere with military radars. So given all this interference, why are we seeing this surge in renewables this year?

7:42So it's partly and ironically because of Trump. Under the terms of the one big beautiful bill, solar and wind developers, if they wanted to access tax credits for their final projects, they had to start by July the 4th and they have to finish by 2030. And that means that if you're a developer with a project in the pipeline, you're going to build it sooner rather than later. And so some of the bump we're seeing is a rush to get shovels in the ground. The other reason though is just market forces. Solar and wind, although they're intermittent, which means that they don't provide continuous power most of the time, are some of the cheapest and quickest energy sources to add to the grid.

8:21And at a time where electricity demand is skyrocketing due to data centers, but also the electrification of vehicles, it kind of just makes sense to get your projects on the grid and reap the benefits of that. Is the rise in green energy projects even across the industry? Or are there parts of the space that are actually hurting from Trump's actions? So if we're thinking about renewables, Trump has expressed absolute enmity towards wind. And so the most targeted aggressive action we've seen has been against offshore wind. And, you know, the blanket ban on onshore wind projects continuing across the country has been pretty severe, something which solar hasn't really experienced.

9:05There's been interference in lots of projects, but we haven't heard Trump talking with the same kind of disdain about that industry. And it even has some allies in the White House. On the flip side, there are industries like nuclear and geothermal, which technically counters green energy, which are able to provide continuous power of the sort kind of needed for data centers. And they've actually fared quite well under Trump. But the issue with them is that they're very capital intensive and it's kind of hard to load it onto the grid like it is for renewables. Martha, given all this, does the clean energy industry have a strong future in the U.S.?

9:45I think a lot of that depends on the multi-billion dollar question of how far the AI boom runs. Because if we continue throwing up data centers which need massive amounts of power, then overall electricity demand is going to continue and there'll be a need for more of these projects. The other thing that's noteworthy is that even if demand holds steady, there are a lot of real supply constraints towards being able to get these projects off the ground. Like there's a massive shortage of transformers. It's super hard to get workers. So that could be something that drags down the trend, even if, you know, the data center boom and the demand for electricity continues.

10:23But obviously, the industry is a political football. And so if we see another Republican administration in a few years, these attacks could continue. However, if there's a Democrat in the White House after 2028, it might be that some of the incentives that they've lost are at least partially brought back. But I guess the one constant is that the supply chain challenges are going to remain. Martha Muir is the FT's U.S. energy reporter. Thanks, Martha. Thanks, Sonia.

10:58Before we go, this last segment might sting a bit for some people on holiday in Europe. Jellyfish-like creatures are swarming the continent's beaches. They're called Portuguese man-o-war. They might look pretty. They have translucent blue, purple, or pink inflated crests. but their barbed, venomous tentacles extend up to 30 meters below the ocean's surface. The species is typically found in tropical waters, but the high temperatures sweeping Europe because of global warming are making its beaches a lot more appealing to these creatures.

11:42You 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 tomorrow for the latest business news.

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