Treasuries Will Have a Tough End to 2026: 3-Minutes MLIV

Summary

Mark Cudmore warns that the AI CapEx bubble is still inflating but will eventually burst when a hyperscaler cuts spending, most likely around an earnings season. He presents a firmly bearish view on US Treasuries, citing fiscal incontinence, weak policy credibility, persistent inflation, and hyperscaler debt expansion, with the pressure intensifying toward year-end and the midterms. On European equities, he expresses cautious optimism that the market can withstand elevated oil prices in the $80–$100 range and that the European theatre story will be sustained.

• AI hyperscaler CapEx bubble still has room to run, but a change in CapEx plans at a hyperscaler would signal the burst.
• Earnings seasons are the critical window to detect a shift in hyperscaler spending intentions.
• US Treasuries face a very negative backdrop: fiscal incontinence, low policy credibility, and sticky inflation.
• Hyperscaler debt expansion adds another layer of pressure to the Treasury outlook.
• Treasury selling pressure is expected to increase into year-end and the US midterm elections.
• European equities are seen as resilient with oil in the $80–$100 range; only a spike well above $100 would disrupt the bullishness.
• The European theatre story, likely referencing defence and energy security, is expected to continue supporting European stocks.