US Treasury yields soar

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0:32Good morning from the Financial Times. Today is Thursday, September 24th, and this is your FT News Briefing. U.S. Treasuries are at it again, and Iran's president hits back at Donald Trump at the U.N. Plus, the U.K. budget is in a tight spot. I'm Sonia Hudson, in for Mark Filipino, and here's the news you need to start your day.

1:07The red-hot U.S. economy and the inflation that comes with it has bond investors scared. The yield on the 10-year Treasury rose to 5.12 % yesterday. That's its highest level since 2007. Now, this came after a report from S &P Global that showed U.S. business output this month accelerated at the fastest pace in five years. This adds to concern that the U.S. economy is running too hot and that inflation is getting out of control thanks to the energy price increases caused by the war in Iran. Bond yields first jumped above 5 % a couple weeks ago.

1:53Iran's President Massoud Pazeshkian responded yesterday to U.S. President Donald Trump's combative speech at the United Nations. But notably absent was the U.S. delegation, which walked out of the room during his speech. Pesachkian told the U.N. General Assembly through a translator that Tehran was prepared to negotiate with the U.S., but he also warned that the country would not accept Trump's, quote, bullying. Those who are terrorists and train and protect terrorists describe us as such. We have only defended ourselves. We are not terrorists. The day before, Trump threatened to annihilate the Islamic Republic if it didn't agree to his terms to end the war.

2:39Also at the U.N. yesterday, Anthropic co-founder Dario Amadei urged the Security Council to pursue narrow AI safety agreements, like a ban on the use of models to build biological weapons. This comes as the AI industry is concerned that humans could lose control of the technology. Amadei said earlier this month that Anthropic would slow down its AI development to address those worries.

3:11UK Prime Minister Andy Burnham's government is facing its first major test in a few weeks, the budget. Chancellor John Healy said earlier this month that the British economy was, quote, turning a corner, but that optimism has been undermined by another surge in oil prices from the Iran war. Healy is now under pressure from higher borrowing costs, weaker growth expectations, and Burnham's desire to help voters with the cost of living. I'm joined now by the FT's Sam Fleming to talk more about this. Hi, Sam.

3:42Sam Fleming: Hi there. So just how difficult is the UK budget situation for Healy? This is a very tough budget for John Healy. It'll be his first budget as chancellor. He and Andy Burnham recently took power as the new people in charge of the Labour Party and the current government. And the backdrop to this budget is a tough one because energy prices have been rising, inflation is rising, and critically, government borrowing costs are rising around the world. And that is driving up interest costs for the current government and potentially therefore damaging the fiscal position of a country and forcing the chancellor to make some corrections to do some tax hikes or spending cuts in the upcoming budget.

4:23Okay, so tax rises and spending cuts are one option. What else is Healy considering?

4:30Sam Fleming: So back in March, the Office of Budget Responsibility, which is the government's fiscal watchdog, projected that the fiscal buffer, the kind of wriggle room that the government had against its key budget rule was around£23-24 billion. That is widely expected to have fallen when the next set of forecasts get presented alongside the budget on October the 28th. So the question really is, assuming that is correct because of the factors we've been discussing, that the headroom could even have been halved or even more as a result of these various factors that are going against the Chancellor, the question is what to do about it.

5:07Sam Fleming: Now, there's one option is that they don't actually fully rebuild the buffer back to where it was back in March. So they accept a slightly smaller surplus at the end of the forecast horizon on the current budget. What happens if Healy does have to raise taxes? I can't imagine that would go over well with voters. Well, this is where the politics just get really torturous for Labour. John Healy's predecessor, Rachel Reeves, had two tax-raising budgets which collectively raised£66 billion. pounds. That's one of the biggest stack-to-back tax hiking packages in living memory. Andy Burnham, the Prime Minister, and John Healy just do not want to have to repeat that kind of big tax-raising package.

5:47Sam Fleming: The hopes, clearly, when Andy Burnham came to power were that they weren't going to have to actually punish voters with yet more fiscal spending cuts or tax hikes. That appears, largely because of the Middle East conflict and the surging energy prices and the impact that's had on financial markets and on the economy to be less likely. On top of that, the politics are pushing them to show they can exercise some restraint on the spending side as well, and in particular in the area of welfare, where they're under a lot of attack from the conservatives and other right-of-center parties. So there are no easy answers for John Healy in this situation, but it does seem likely that at least part of the consolidation will be delivered by tax increases.

6:30Sam Fleming is the FT's economics editor. Thanks, Sam.

6:34Sam Fleming: Thank you.

6:40Russian state oil group Rosneft funneled billions of dollars through a Kremlin-backed money laundering network called A7 to avoid sanctions. As we mentioned earlier this week, A7 was billed as an alternative to the international payment system called SWIFT. Swift. Russia is banned from using Swift, so A7 facilitated global payments for Russian businesses. But the FT revealed that A7 actually used fake entities to allow Russian companies to make international payments within the Swift system. The latest discovery puts Rosneft at the heart of Russia's efforts to get around these sanctions and fund the war.

7:23Rosneft provides the hard currencies that A7 can then spend outside the country. Rosneft did not immediately respond to requests for comment.

7:38During his speech at the UN General Assembly yesterday, Syrian President Ahmed al-Shara said his country has had a, quote, breakthrough. That's because the dictatorship of Bashar al-Assad fell two years ago. And since then, international sanctions have been lifted and diplomacy has resumed. But the memory of the Assad regime is far from gone for ordinary Syrians. Many of them are desperate for justice for the crimes committed by the regime. The challenge is achieving accountability without tearing the country apart. The FT's Malaika Tapper has been reporting on this, and she joins me now to discuss.

8:15Hi, Malaika. Hi. So Bashar al-Assad ruled Syria for almost a quarter century. Remind us of what life was like for Syrians under his rule. So Bashar al-Assad ran a network of prisons and detention centers where hundreds of thousands of people were tortured and many of them disappeared forever. There was a horrific civil war for 14 years. The regime used chemical weapons against its own people. I recently visited Eastern Ruta, where regime forces waged a five-year siege, and many of their neighbors were killed in chemical attacks. That's some of the wounds that are still open. Now, you report that progress on prosecuting these crimes has been pretty slow.

9:04Officials are focused on the top-level people in the regime. Why is that approach upsetting ordinary Syrians? The problem with that is so much of the violence was very personal and very local. So that meant an informant in someone's neighborhood who caused the arrest of your husband or the man who was from the neighboring district who ended up being your torturer in prison. And it's those people who are least likely to face trial under the new government's approach. And why is the government doing it this way? So finding the right balance between prosecutions and reconciliation is often a challenge that countries face following regime change.

9:52In Syria, they need to find a balance between satisfying people's thirst for justice with their worry that if they do mass prosecutions of those who served in Assad's military forces, they could alienate the Hala 'aite minority sect to which he belonged, and that could spark another sectarian conflict. And another problem is that the government inherited a broken and corrupt judiciary that really doesn't have the capacity to carry out fair trials on a massive scale at this time. If the government is not able to serve justice on a large scale, what would that mean for the country? I think that the fear would be of social sectarian mistrust deepening rather than easing, and that could eventually lead to more violence.

10:50I think the most salient part of that often comes on the local level. One woman I met in Ruta, who gave birth the day after her husband was forcibly disappeared by the regime, said that the man who had caused his arrest had finally been arrested, but that his daughter went to school with her daughter and that they had confronted each other at school. The daughter of the man who'd been arrested told her daughter that this was the first holiday I've had where my dad and mom haven't been together. And she said that her daughter replied, we've had so many holidays like that. Wow, that's such a powerful scene.

11:31Thank you for your reporting, Malaika. Malaika Tapper covers Lebanon, Gaza, and Syria for the FT from Beirut. Thank you.

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. Thank you.

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