Lest We Forget

Bessent made a comment Tuesday morning that “I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do. And you can bet against me if you want.”¹ For those less familiar, Bessent and the Treasury Department have intervened in the yen since late July, with Reuters publishing a photo of Bessent’s notepad with the words “Buy Japanese yen (JPY) $5-10 bil” listed as a to-do item during a cabinet meeting.² Japan and the U.S. engaged in a rare joint intervention that day, the first coordinated effort since 1998.³ Bessent defended the move in mid-August, including Congressional inquiries.

In addition to yen intervention, Bessent and the Treasury have been active with U.S. government bonds. As we noted previously, on August 19 the Treasury Department announced that it would at least double its bond buybacks for maturities ranging from 10 to 30 years.⁴ The timing coincided with outstanding U.S. federal debt touching $40 trillion for the first time; bond markets responded with 30-year Treasury yields hitting their highest level since 2007 but temporarily reversed course following the Treasury announcement. However, since that day, bond yields have risen across the curve, and on Thursday 10-year yields touched 4.96%, very close to the psychological 5% barrier not traversed since July 2007 on a closing basis. In addition to ongoing concerns about indebtedness and inflationary pressures, the actual Treasury buybacks on Wednesday were smaller than anticipated, sending interest rates higher.

As always, one has to adopt a “working hypothesis” mentality with macro events and their potential capital market impacts. We are reminded of the adage, “it’s not the news, it’s the reaction to the news.” We do not think an ephemeral breach of 5% for U.S. 10-year Treasury yields is necessarily cause for concern, but the more time spent above 5%, investors could become increasingly wary about consumer durability and what higher rates may mean for corporate borrowing.

Large company balance sheets remain strong and interest coverage for S&P 500 companies (defined as operating earnings divided by debt expense) is close to 10x, thanks to higher earnings and margins across several industries.⁵ As investors, we are less concerned about how higher rates may impact large companies and much more focused on implications for commercial and residential real estate plus smaller company borrowings. Commercial real estate remains a risk, yet has escaped headlines due to loan extensions, mixed performance by subcategory and geographic divergences. Higher rates can lead to loan troubles, and higher rates mean increased commercial tenant rent expense.

The consumer impact remains an open question, and our economics team continues to publish thoughtful commentary regarding adaptability and trends. Leaving official views to that team, we have likened consumers to a runner on a treadmill, with interest rates akin to the treadmill’s resistance ramp. The more elevated that ramp gets, the higher the propensity for the runner to slow.

We often hear challenges about higher interest rates within a historical context; many readers may recall mortgages averaging nearly 9% in the 1970s and 13% through the 1980s, with Freddie Mac rates peaking at over 18% in October 1981.⁶ Based on Federal Reserve data, household debt service and financial obligation payments as a percentage of disposable (after-tax) income are a percentage point higher than they were in the 1980s.⁷ Given a consumer base with increased leverage, an aging population, still-sluggish labor force participation and concerns regarding AI’s labor market impact, “higher for longer” interest rates can pose capital market challenges not yet reflected across asset classes.

At this point in the earnings calendar, we jokingly say that corporate earnings continue to linger like stale company. The trick with corporate earnings reports is to determine what components of a given release provide a pan-industry or broad economic read and what components are company-germane. Although we do not provide individual security recommendations on these pages, two earnings reports this week within the technology industry bear discussion.

Oracle is considered a hyperscaler, offering insights into the AI ecosystem. Cloud services remain a critical industry theme for all hyperscalers, balancing supply factors like access to critical technology inputs including memory chips and data center access with questions around demand stability. Oracle’s earnings underscored that cloud demand remains strong and exceeds their supply capacity, with cloud revenue up 62% year-over-year.¹¹ Infrastructure services and data center growth were standouts, with Oracle Cloud Infrastructure revenue up a whopping 120% in constant currency terms and a backlog characterized as one of the largest future revenue realizations they have recorded.¹²

However, Oracle’s software business reflects transitions within the industry, with software applications growth totaling 10% but overall software revenue falling 3%. Management noted that its legacy licensing business will likely continue to see pressure from customers moving to the cloud versus on-premises engagement.¹³

Markets may be moving away from the mantra that the current rise in hydrocarbons and related products is transitory and a short-term shock toward the view that perhaps higher prices may endure. The initial post-Iran ramp higher in headline crude prices has given way to market observers paying much more attention to what businesses and consumers are actually paying, namely for diesel and gasoline. As measured by the American Automobile Association (AAA), daily national retail diesel prices are at their highest published levels since AAA first published them in 2005 and are now 61% higher than where they stood the day before the Iran tensions unfolded.¹⁵

Another significant development this week is that during the September 6 OPEC+ meeting, seven key producers announced that they would pause oil production increases following four straight months of increased output.¹⁶ Further, Saudi Arabia reportedly told OPEC that its August crude production fell to its lowest reported production level since 1990, down close to 2 million barrels per day from July.¹⁷ Production capacity does not appear to be the issue, but instead pervasive export problems. The Houthi rebel advances in Yemen coupled with Strait of Hormuz tensions remain constraints. While we anticipate lower energy prices over time, the current supply/demand imbalance risks further upside in the very short term, providing another resistance ramp to businesses and consumers.

 

 

¹ Glass, Mia and Roy, Yash. “Bessent Dares Traders to Bet Against Yen: ‘I Am the House Now’”. Bloomberg Economics. September 8, 2026. https://www.bloomberg.com/news/articles/2026-09-08/bessent-dares-traders-to-bet-against-yen-i-am-the-house-now. Accessed 9 September 2026.

² Heuer, Daniel and Lawder, David. “Bessent's 'to do' list: buy $5-10 billion worth of Japanese yen, Reuters photo shows.” Reuters News. July 31, 2026. https://www.reuters.com/world/asia-pacific/bessents-to-do-list-buy-5-10-billion-worth-japanese-yen-reuters-photo-shows-2026-07-31/. Accessed 9 September 2026.

³ Flatley, Daniel and Andrianova, Anya. “U.S. Treasury chief’s ‘whatever it takes’ vow to help yen masks limited firepower.” The Japan Times. August 11, 2026. https://www.japantimes.co.jp/business/2026/08/11/bessent-yen-limited-firepower/. Accessed 9 September 2026.

⁴ United States Department of Treasury. “Treasury Announces Increased Sizes of Nominal Long-End Liquidity Support Buybacks Beginning September 9.” Treasury Press Releases. August 19, 2026. https://home.treasury.gov/news/press-releases/sb0607. Accessed 9 September 2026.

⁵ Lense Analytics. Data sourced by company filings as of September 10, 2026. https://lense-analytics.com/fundamentals/sp500-interest-coverage. Accessed 11 September 2026.                 

⁶ Northern Trust Wealth Management Research, Bloomberg, Freddie Mac. Data accessed on terminal September 11, 2026.

⁷ The U.S. Federal Reserve Board. “Household Debt Service and Financial Obligation Ratios.” https://www.federalreserve.gov/releases/housedebt/default.htm. Accessed 11 September 2026.

⁸ Northern Trust Wealth Management Research, Bloomberg data. Accessed on terminal 11 September 2026.  

⁹ The European Central Bank. “Monetary Policy Statement Press Conference.” September 10, 2026. https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/2026/html/ecb.is260910~6a45359cfc.en.html. Accessed 11 September 2026. 

¹⁰ Northern Trust Wealth Management Research, Bloomberg data. Accessed on terminal 11 September 2026.  

¹¹ Oracle Corporation. “Oracle Announces Q1 Results Driven by Triple Digit Growth in Cloud Infrastructure Revenues.” Oracle Investor News. September 10, 2026. https://investor.oracle.com/investor-news/news-details/2026/Oracle-Announces-Q1-Results-Driven-by-Triple-Digit-Growth-in-Cloud-Infrastructure-Revenues/default.aspx. Accessed 11 September 2026.

¹² Ibid

¹³ Ibid

¹⁴ Adobe Corporation. “ADBE Q3FY26 Earnings Release.” Adobe Investor Relations. September 10, 2026. https://www.adobe.com/cc-shared/assets/investor-relations/pdfs/01906202/au56y4ter.pdf. Accessed 11 September 2026.

¹⁵ Northern Trust Wealth Management Research, Bloomberg, AAA. Data accessed on terminal 11 September 2026.

¹⁶ Azubuike, Emmanuel. “OPEC+ Pauses Oil Output Hikes After Four Straight Monthly Increases.” Nairametrics. September 6, 2026. https://nairametrics.com/2026/09/06/opec-pauses-oil-output-hikes-after-four-straight-monthly-increases/. Accessed 11 September 2026.

¹⁷ Pip Theory. “6.238 mb/d, a 36-Year Low (September 2026): Saudi Arabia Is Now Supplying More Oil Than It Pumps.” PipTheory. September 11, 2026. https://piptheory.com/research/saudi-output-36-year-low-september-2026. Accessed 11 September 2026.