The week’s dominant story was a sharp escalation in the Iran war, now entering its sixth month. Iran-backed Houthi rebels declared a blockade of Saudi Arabia and intensified attacks on tankers in the Red Sea, opening a new front in the conflict. Brent crude prices surged, now up over 33% for the month, breaking through $100/barrel on Thursday for the first time in two months. Gulf states are reportedly preparing a debt-financing push to fund costly pipeline bypasses around the Strait of Hormuz, which has been effectively closed since March.
On Friday, the Trump administration announced new import duties of 10%-12.5% on goods from approximately 60 economies, framed around a forced-labor supply chain investigation. It’s the administration’s biggest move yet to reconstruct the tariff wall struck down by the Supreme Court. The tariff announcement compounded the oil-driven inflation narrative and weighed risk sentiment across equities and credit markets through the back half of the week.
Global bond markets were pummeled all week with U.K. gilt yields setting a record for the longest stretch of daily closes over 5% in nearly two decades. Germany’s 10-yr yield climbed to its highest level since 2011, and Japan’s 40-yr yield jumped 10 bps on Friday alone. U.S. high-yield spreads and yields surged the most in four months, with CCC-rated bonds hitting 15-month highs and Treasury yields hitting their highest levels of the year on Thursday before easing slightly on Friday as oil pulled back.
The European Central Bank held its deposit rate at 2.25% on Thursday in a unanimous vote. Some policymakers considered an immediate hike before the decision, signaling that inflationary pressures have not abated and that a September hike remains more likely than a hold. Markets will be all ears for Kevin Warsh’s second meeting next week. At which the committee is largely expected to hold rates in place. However, there does remain a 1 in 3 probability for a rate hike.
America's Car-Mart, a 45 year-old Buy Here, Pay Here subprime auto dealer, is on the brink of collapse after a bet on asset-backed securitization backfired. The company borrowed $2.5 billion via ABS markets from 2022-2025, but rising rates crushed its deeply subprime borrowers, driving up credit losses and forcing tighter lending standards. ABS cash-flow mechanics, which wall off collections to protect bondholders, left Car-Mart starving for liquidity. A $300 million rescue loan from Silver Point Capital with tight covenants provided temporary relief but didn't solve the structural problem. Car-Mart defaulted in June 2026 and is now exploring asset sales or a wind-down, potentially outside bankruptcy.
KEY INDICATORS THIS WEEK
Jobless claims – Initial claims fell 22,000 to 187,000; Continuing claims fell 2,000 to 1.796 million.
Next week – FOMC meeting.