From View From The Top, 28 October 2026
I borrowed through four rate cycles before I ever lent through one. This one is different.
There’s an interesting interpretation of The Wizard of Oz — one economists have argued over for decades — as a parable about the 1890s money wars. The yellow brick road is the gold standard. Oz is the ounce. And the Emerald City is only green because everyone in it is made to wear tinted glasses.
We’ve spent thirty years living in the Emerald City. This month, the glasses started coming off and not all things are as they seem….
In Monday’s post I asked a question: is this rate move a ’94 event — violent, fast, over in a year? Or an ’06 event — an adjustment deferred, compounding quietly until it arrives all at once?
I’ve spent the week in Spain reading and convincing myself the answer is neither actually. And I want to talk you through why, because the difference is how every lender, sponsor, and investor in this market should behave for the next few years.
I’ll start with my credentials for the claim, because they’re slightly unusual: I borrowed through the first four cycles. I was building across Central and Eastern Europe from 1991 to 2008 — on trending but bumpy liquidity wave and on the receiving end of the phone calls when the terms changed. I only became a bona fide lender later on in life. It turns out that was a useful education, because I know what each kind of cycle feels like from the side that gets hurt first.
THE FOUR CYCLES I BORROWED THROUGH
1994. The Fed doubled rates in twelve months — 3% to 6%, with 50 and 75 point moves nobody saw coming. The 10-year went from just over 5% to 8%. The bond market seized, Mexico cracked. And then — it was over. By 1995 the market had found its level and lending resumed again. Violent, fast, but survivable.
1998. Not a rate cycle — a credit one. Russia defaulted next door to the markets I was building in, LTCM nearly took the system down, and spreads blew out everywhere. The Fed cut three times in the autumn and the fire went out. For those of us borrowing it was a brutal year. It was also just a year.
1999–2000. The Fed took rates to 6.5% into the dot-com froth. The unwind ran two years, the Fed slashed to 1%, and cheap money came back bigger than before.
2004–2006. The strange one. Seventeen consecutive hikes — 1% to 5.25% — and the long end barely moved. Greenspan called it a conundrum. The adjustment didn’t happen; it deferred. It compounded quietly in the marks and the structures for three years, and then arrived all at once in 2008. I sold everything a week before it landed. That cycle wasn’t survivable for everyone. I think we all know that story. The world felt like it was about the end.
But now notice what all four had in common: the Central Bank was driving the bus.
Rates rose because policy pushed them, and when growth cracked, policy rescued. Cuts came, the long end fell, assets recovered. A borrower’s rational strategy — I know, because it was mine — was often simply to hold on (mainly I had no choice). The rescue was intentionally structurally built in.
That is the world extend-and-pretend was born in and it worked because the cavalry always came in the end.
BUT WHAT’S DRIVING THIS ONE
Look at today’s recent move closely and something doesn’t fit either playbook.
The US 10-year is at levels last seen in the early 2000s — while the market debates whether the Fed is nearly done. The long end isn’t rising because of policy. This time it’s rising on its own, on what the bond market calls term premium: the extra compensation investors now demand simply to hold long government debt at all.
Three forces, none of them cyclical:
Peacetime deficits at wartime levels. America is borrowing six to seven per cent of GDP at full employment. Nearly every major government is doing some version of the same — and the spending behind it is structural: defence, energy, ageing populations. The issuance has no end-date.
The big buyers stepped back. For thirty years there was always a price-insensitive buyer of government debt — Japan recycling surpluses, China recycling trade dollars, then the central banks themselves through QE. All three are now reducing, not adding. The marginal buyer of a government bond today is a price-sensitive investor who wants to be paid for the risk.
And inflation that won’t fully die. Deglobalisation, tariffs, labour scarcity. The bond market no longer trusts the old anchor, so it charges for the doubt.
Put plainly: for my entire career, governments set the price of money and markets adjusted to it.
That has all inverted. I’ll take the chance and say, the bond market is now setting the price of government — and everything else is adjusting to that.
PARIS AND MILAN ARE THE PROOF
If you want to see the new regime working, look at Europe this month. A mess.
I read the French 10-year touched five per cent last week — the first time since 2002 — with riots in the streets and a budget vote hanging over the government. Italy’s spreads tell the same story at lower volume. These are not emerging markets. This is the seventh-largest economy on earth being repriced like a credit.
And Britain is not a spectator. Gilts carry the same fiscal premium — the Bank of England’s own analysis attributes much of the rise in UK long rates to exactly these global forces. Which is why this next Budget matters more to this market than any Budget in years: it’s Britain’s version of the French vote, with the bond market marking the homework in real time.
WHAT IT MEANS AT MY DESK — THE TWO HITS
Monday’s framework, now with its proper answer.
The pipeline hit looks like ’94. Fast, loud, repricing now. A deal underwritten in April doesn’t fund in October — same scheme, same sponsor; the denominator moved. So the conversations running through every pipeline right now is: more sponsor equity, bigger liquidity cushions, lower proceeds. Uncomfortable, visible, and honestly priced within months. This part of the adjustment is healthy. It’s the market working.
The portfolio risk is the ’06 pattern — with one terrifying difference. In 2006 the deferral at least ended with a central bank that could and did cut to zero. The books that extended-and-pretended in 2008 were eventually refloated by policy. But today’s long rates don’t answer to the central bank — they answer to deficits. The Fed can cut the front-end next year and the 10-year can stay exactly where it is, because the term premium is charging for fiscal risk, not policy risk.
Which means the thing extend-and-pretend waits for — the rescue, the refinancing window, the return of the old discount rate — may simply not arrive. Waiting is no longer a strategy; it’s an unpriced bet on fiscal consolidation in Washington and Paris. I wouldn’t lend against that collateral.
It’s no coincidence that the Bank of England chose this month to start asking Barclays how its traders classified derivatives referencing illiquid private credit loans — a probe first reported by the FT. When the long end reprices and stays repriced, the hopeful books get found. The regulator knows it, which is why it’s looking now.
HARD LANDING
In every cycle I borrowed through, there was a moment when holding on was the smart move, because the cavalry was coming. I built a career partly on knowing when to hold on — and once, in 2008, on knowing when not to.
This time the cavalry isn’t coming, because the cavalry is the one being repriced. There are fewer horses left to ride out of the stable block.
So the discipline changes.
- Deals must pencil at these rates, not at remembered ones.
- Marks must reflect this curve, not the one we’d prefer.
- And the lenders who reprice honestly now — pipeline and portfolio both — will spend the next five years buying the mistakes of the ones who waited for a rescue that answers to the bond market, not the central bank.
Neither a ’94 nor an ’06. Something older — as old as the yellow brick road: a world where money has a price again, set by the people lending it.
I started my career in that world. It suits me fine.
NEXT WEEK
The Budget — what it must do for housing delivery, what it will probably do instead, and how the bond market grades it.
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