Markets hate uncertainty, and the last 48 hours have delivered a double dose. First, President Trump’s Iran strategy: after weeks of sabre-rattling and maximum pressure, a sudden pivot towards diplomacy. The White House calls it tactical flexibility.
The City calls it a flip-flop, and gilt yields are twitching accordingly. The 10-year yield rose 4 basis points this morning as investors priced in the possibility of de-escalation, pushing Brent crude down 2 per cent. But the real story is the capital flight that didn’t happen.
Despite the chaos, the dollar held firm. Why? Because the second distraction is far stranger: declassified US Navy UFO videos, now being analysed by UK intelligence.
Yes, you read that correctly. While the Treasury frets about the fiscal implications of a Middle Eastern war, MI6 has been asked to review footage of ‘unidentified aerial phenomena’. This is not a plot from a Tom Clancy novel; it is the new reality of geopolitical risk.
The MoD confirmed the review on Thursday, citing ‘potential national security implications’. The timing is exquisite. Just as the administration wants to pivot from confrontation, the UFO distraction offers political cover.
But the fiscal abyss remains. The US national debt stands at $34 trillion, and the cost of any new military adventure would blow a hole in the budget. The Treasury is already struggling to sell 30-year bonds at a reasonable yield.
The UK is in a similar boat: our own debt-to-GDP ratio is 98 per cent, and the Bank of England is trapped between inflation and recession. So while the papers obsess over little green men, the real aliens are the bond vigilantes, waiting to punish any government that loses fiscal discipline. My advice?
Watch the 10-year yield, not the skies. The truth is out there, but so is the deficit.
