It’s all change at No 10 again. Another ceasefire has been agreed between the US and Iran, oil prices are dropping, though there still appear to be significant differences and challenges over the 14-point deal. Inflation remains above target in both the UK and US. SpaceX flew into orbit but, just like its reusable rockets, it appears to be returning to earth. And is that the faintest of hisses from the AI bubble?
As ever, there is a lot going on.
Long-Dated Gilt Prices Are Still Drifting Lower
Source: Bank of England, UK Debt Management Office, Tideway, 20/01/2021-29/05/2026
This was a 25-year gilt at issue, during peak quantitative easing (QE), with a massive coupon of just 0.875% p.a. It is now 20 years in duration and, thanks to a 55% drop in value, now yields just over 5.3% to maturity – six times its original coupon.
Inflation after Covid stopped QE, then the wars in Ukraine and Iran have piled on inflation pressure. The UK Government (and the US) is running a budget deficit, probably up to c£150bn a year, and the cost of servicing its c£3 trillion debt is rising.
Nobody thinks the new Prime Minister will do or will be able to do much to address that. This chart and the equivalent in US treasuries, which looks much the same, are crucial to what’s happening in investment markets.
This massive loss on longer dated gilts has dragged down passive gilt index funds, pushed up annuity prices and corporate bond yields and is forcing everyone to adjust to a much higher cost of money. No longer is cash virtually free to throw at investments and business plans. The cheapest 5-year fixed rate mortgage attracts c4.3% interest, a small business loan is going to cost 7% plus p.a., and even the mighty SpaceX is paying c6% to sell its bonds in the $25bn raise just completed. It has taken its time to fully hit home, but the cost of money is now impacting everything from house prices to business plans and the value of speculative assets.
Speculative Asset Prices
Source: Morningstar, 29/01/2026-25/06/2026, to 23/06/2026 Tideway’s Multi Asset High Yield Portfolio – Total Return in GBP.
We had plenty of people asking us about gold, silver and Bitcoin in 2025, we are pleased we stuck to our guns and ignored them.
We produced this chart earlier in the week and all three ‘investments’ have fallen further.
Leveraged investors are always a worry and accelerate falls when corrections occur. In Bitcoin there is Strategy Inc, an IT-business-turned-Bitcoin-hoarder, now owning 847,363 coins – around 5% of the coins in issue. Strategy has borrowed money to buy coins, and has issued complex quasi bond-like shares with 11% coupons to raise money to buy coins. These variable rate, perpetual preference shares are now trading at 75 cents in the dollar and Strategy is burning through its cash reserves to pay the coupons. What could possibly go wrong? Strategy Inc shares are also down 55% but in just over a month!
That Hiss from the AI Bubble
There are the faintest hints appearing that not every participant in the AI trade is going to make out like a bandit. The root cause? It’s back to the cost of money.
Initially this bubble was different this time, because those investing in AI were cash rich and just spending from easily earned high margin profits. That source of easy cash is running dry as the cost of competing in AI mounts. US tech firms are tapping the bond markets like never before. In a report in February, UBS estimated that US tech firms would seek to raise $360bn in corporate bond issuance in 2026 to help fund the ever-ballooning capex bill to keep up in AI. Additionally, Google parent Alphabet issued new shares, raising $80bn (a tad more than SpaceX), diluting existing shareholders, and that’s before the planned IPOs of Open AI and Anthropic. This is in stark contrast to the stock buybacks of recent years.
On top of the cost of staying in the game, questions are getting louder as to how AI gets monetised. This article in Fortune magazine caught my eye, looking at companies now restricting AI token usage as costs spiral and output underwhelms.
Add this to the security risks created by unconstrained AI usage and it’s clear the purveyors of AI are not going to have it all their own way.
All of this is starting to show up in the share prices of those ‘hyperscalers’ in the AI race.
The so-called Magnificent 7 are looking a lot less magnificent in 2026. After a breakneck start, it’s not looking quite so good today. Even Nvidia, the Yul Brynner of the pack, is looking a bit tired!
Source: Gemini AI 26th June 2026
It’s a bit too early to be calling out ‘I told you so’, but for now, any FOMO we had from not owning the speculative assets and being substantially underweight these mega cap US tech stocks has subsided.
