Intro
Tom Stevenson, investment director at Fidelity International, joins from London to work through the collapse of the US-Canada trade talks, Scott Bessent's interventions in the currency and Treasury markets, and the case for European equities and for bonds. Pamela Richie brings the Canadian side of the trade story and presses him on Andy Burnham's first weeks in Downing Street and on where bonds belong in a portfolio.
Guest: Tom Stevenson, investment director, Fidelity International
Host: Pamela Richie
Published: 28 August 2026 on FidelityConnects · recorded 24 August 2026
Episode page | 30 min
Key Takeaways
Bessent's currency and Treasury interventions are a tell, not a show of strength
"that smacks of weakness and concern on his part" — Stevenson
The yen move was about stopping Japan selling Treasuries, not about the yen
In a fight between the US Treasury and the bond market, the bond market wins
"it's probably the bond market which is going to come out on top in this situation" — Stevenson
The Iran sanctions plan is a China story wearing a Strait of Hormuz costume
China is a big purchaser of Iranian oil, so the threat reaches Beijing
Three forces are pushing bond yields the same way at once: inflation, debt and AI issuance
"the US national debt has hit $40 trillion for the first time" — Stevenson
UK pension demand for long-dated bonds is shrinking as final salary schemes roll off
Nvidia's results, Jackson Hole and the bond market are one story, not three
"they all seem quite different. They are all intimately linked" — Stevenson
Kevin Warsh's refusal to give forward guidance has left investors unsettled
The trade breakup ends somewhere better and less efficient than where it started
More duplication is the price of more resilience, for Canada and for Europe
Europe's run is proof the stock market is not the domestic economy
"European shares were extremely cheaply valued relative to US stocks" — Stevenson
Andy Burnham's political hand is stronger than his economic hand before the October budget
Bonds are tomorrow's story rather than today's, and the entry point is a yield with a five or a six in front of it
"once yields get above 5% and towards 6% then really you are being paid to wait" — Stevenson
A regime shift is putting the starting yield back at the center of total return
Canada's Trade Breakdown Looks Familiar From Europe
Richie opens on the news of the day: Canadian businesses digesting the collapse of the US-Canada trade talks, a less communicative Federal Reserve, and Treasury Secretary Scott Bessent whose "recent words and actions aim to reshape the plumbing of bond and currency markets."
She sets the market backdrop herself — global equities hovering near all-time highs, and European equities in particular having "served up growth and diversification for investors" — then puts Canada's reciprocal tariffs, due to start on September 8, to Stevenson.
Stevenson's first instinct is to read Canada through Europe. "we see quite a lot of similarities between the Canadian situation and the situation that we've been in within Europe", he says, and even between the UK and the rest of Europe — the same fallings out, the same reworking of structures that had been in place for years.
He splits the question into a short-term impact and a longer-term implication. The short-term read is "a sort of negative stagflationary read on what's going on and that's unhelpful" — negative for growth, and negative for inflation in the opposite direction.
The longer-term question is the one he finds interesting: "how does Canada, you know, and Europe reframe their relationships in a world in which you can no longer have the same sort of agreements and trust that you've had for, you know, 20, 30 years"
Richie asks whether that is simply good or bad. Stevenson says the transition is painful and the destination is probably better, but the structure you end up with is worse on paper — the Canada, US and Mexico arrangement has been supremely beneficial to all parties for decades, and "if you move away from that and you start building more strategic independence for your economy, it's necessarily less efficient."
More duplication is the bill for more resilience. That, he says, "maybe is a price that you have to pay in order to get to a place where you have more resilience in your economy", and resilience is the necessary end point for Canada and for Europe both.
Carney Has to Play a Short Game and a Long Game at Once
The host supplies the biography. Richie notes that "Mark Carney was the governor of the Bank of England for a term plus half I think and also the Bank of Canada governor here in Canada as well", and says he is acutely aware of the inflationary risks in front of him.
She asks Stevenson to speak to the approach Carney has perhaps been forced into, weighing his own experience of inflation and stagflation.
Stevenson agrees Carney has been put in a position where every available stance carries benefits and downsides.
He thinks the balance Carney has struck is the right one: "his approach is essentially the right one to balance on the one hand a refusal to back down and to you know if necessary to retaliate even if that has negative consequences in the short term", while playing a longer game of building strategic independence.
"he needs to play a short game and a long game at the same time" — and accept trade-offs in inflation and growth in the meantime.
Richie's own night on the story. She says it feels personal from inside the country: "I think I stayed up till midnight trying to wait for the deal and it really did come through at 11:37, I believe it was or something like that."
Bessent's Yen Move Was About Treasuries, Not the Yen
Richie flags that Bessent has been unusually vocal and active over the past month, with more due that afternoon on sanctions touching anyone buying or selling Iranian oil — a plan he had already laid out in a Financial Times article.
Stevenson treats the Japanese intervention and the Treasury buying pledge as one move. He points to the yen intervention two or three weeks earlier and then last week's promise to double the buying of long US Treasuries, and reads both as a reflection of Bessent's concern about demand for Treasuries falling away as supply increases.
The yield picture he lays out is the reason it matters. "we've got interest rates at 3 and a half to 3.75% we've got 10-year yields at 4.7% we've now got 30-year yields at 5 and a quarter, 5.3 percent and you know that is really problematical for the US" — with long bond yields rising well in excess of shorter and medium-term yields and of the policy rate itself.
The yen operation was not about the yen. "It was all to do with preventing the Japanese selling US Treasuries to prop up their own currency", and in Stevenson's reading it was no different from what Bessent announced a week later — both designed to underpin the standing of the Treasury market.
His conclusion is unflattering. "that smacks of weakness and concern on his part"
Why the Iran Sanctions Are Really a China Story
Stevenson separates the Iran announcement from the Treasury moves. On the face of it, he says, "this is about transitioning the war against Iran from, you know, a military intervention into an economic and financial intervention."
The framing is what gives it reach. Bessent is presenting it as a threat to other countries' relationships with Iran, which Stevenson reads as pulling China in — "China is a big purchaser of Iranian oil"
That converts a narrow chokepoint into a trade fight. The effect is "broadening out this very specific Strait of Hormuz question into the broader US-China trade relationship."
Richie's question underneath it is whether any of it works, or whether it only has to be messaged — what you announce and signal to a market versus what you then have to follow up with.
If the Treasury Fights the Bond Market, the Bond Market Wins
Stevenson allows that signaling matters and that Bessent needs to tell investors to back off because the Treasury is serious about intervening.
But he thinks the market has already reached its verdict. "if there's going to be a battle between the US Treasury and the bond market, it's probably the bond market which is going to come out on top in this situation"
The credibility problem is the same one running through the Iran move. Both the yen intervention and last week's announcement produced a quick immediate impact that unwound quickly.
"If you make threats and then can't follow through, then your credibility is reduced" — and Stevenson says that must be the concern.
Three Things Pushing Bond Yields the Same Way
Richie's setup goes back to the start of 2026, before the war in Iran. Bond managers she spoke to then were worried about "software exposure to AI and the massive amount of issuance going on for funding AI data centers" — and about the competition investment grade paper now offers against Treasuries.
Stevenson breaks the bond market into three elements. The first is inflation. The second is the sky-high level of debt: "we found out last week didn't we that the US national debt has hit $40 trillion for the first time."
He puts that against the pre-crisis figure to show the real change. "You roll back just two decades, just before the financial crisis, that debt level was $6 trillion. So even in today's money, that's no more than 10 or 12 trillion. It's quadrupled in that time in real terms."
The third element is new supply from AI companies issuing bonds to finance the build-out. He is careful about scale: at the margin it matters, but it is nothing like the size of the Treasury market.
Demand is moving the wrong way at the same time. In the UK, "the demand from pension funds for long-term bonds is diminishing as final salary pensions roll off", so supply and demand are both working against bond prices.
Nvidia, Jackson Hole and the Bond Market Are One Story
Richie lines up the week ahead — Kevin Warsh at Jackson Hole at the end of the week, an important inflation indicator, and Nvidia earnings — and asks what they mean and what Warsh needs to look through most closely.
Stevenson's answer is that they are not separate events. A chipmaker's results, the Jackson Hole Symposium and the bond market: "they all seem quite different. They are all intimately linked"
What Nvidia settles is whether the spending pays back. "Nvidia's quarterly revenue figures are probably going to be double what they were a year ago. Is that going to be enough?" — the open question being whether anyone ever gets a decent return on the investment being made.
On Warsh, the complaint is the silence. He has deliberately held back from giving a clear insight into the Fed's thinking, and "He's deliberately not given us any forward guidance."
That, Stevenson says, is why Friday's speech will be so widely watched: "most people find it quite unsettling and confusing not to have a clearer line of sight as to what the Fed is really thinking", even if everyone understands why Warsh is doing it.
Richie expects a large live audience for the speech, including people who would normally wait for the headlines.
Andy Burnham's Political Hand Is Stronger Than His Economic Hand
Richie turns to the UK and its new prime minister, Andy Burnham, who she says has been reasonably well received, and asks for a summing up of how he has landed.
Stevenson frames it the same way he framed Canada — a short story and a long one. Burnham came to power only a few weeks ago into the summer break, which Stevenson calls politically advantageous.
The summer measures were cheap and popular by design. He cites "caps on bus fares" and similar moves — "things that don't really move the dial particularly, but play well with the public."
Politically, Stevenson scores it a good summer: Burnham has eased himself into the job and been fairly well received by the electorate.
The second half of the story is the bill. The question is how Burnham pays for reshaping the economy to be more regionalized and less centralized — which, as Richie notes, means more powers for regional leaders, and which Stevenson calls an interesting parallel with Canada's own less centralized economy.
The October budget is where it gets tested, and the precedent is bad. "I'm thinking specifically of the 2022 Liz Truss budget" — Stevenson says Burnham will be acutely aware not to repeat it and is sure he will not, expecting a more prudent and sensible framing.
"ultimately his political hand is stronger than his economic hand" — public finance data out this month showed "the government borrowed more than was expected more than the market expected", and if Burnham will neither raise taxes nor spend less, October is when he has to square the circle.
Europe's Rally Is a Reminder the Stock Market Is Not the Economy
Richie notes European equities have been on fire for several months, with a fiscal pivot behind it, and asks what investors have actually enjoyed in growth and diversification.
Stevenson dates the run at a year and a half: "if you look at the performance of European equities over the last 18 months especially, I mean they have performed extremely strongly"
The first lesson is a separation investors keep forgetting. "it's been a reminder it's been a useful reminder that the stock market is not the domestic economy" — the European economy is not in particularly strong shape, but neither the European nor the UK market closely reflects its own economy, because both are very international.
The second is price. "European shares were extremely cheaply valued relative to US stocks", and that has been a benefit.
The third is where global money is moving. "this rotation away from growth shares towards more what you might call old economy value stocks that really favors the European markets" — and Stevenson lists where Europe's weight sits: "we're strong in pharmaceuticals, we're strong in banks, we're strong in industrials, some consumer stocks"
The AI rotation helps Europe too, on his reading. The shift is away from the picks-and-shovels beneficiaries toward "who are the companies going to be who are going to benefit from using AI rather than supply" — and Europe's big international companies are, he thinks, in line for large productivity gains.
He grants the case against: Europe trades below the US for a reason, it is less innovative, and so on. His answer is that it is still well placed for where the market is rotating.
Europe Wins on Energy Whichever Way It Goes
Richie brings up the topic nobody had touched. For Canada, an enormous uptick in oil prices has helped parts of the economy and hurt others; for Europe, questions that had looked settled by climate policy are reopening, including whether North Sea oil and gas has to be taken up a notch for energy sufficiency.
Stevenson's view is that Europe is covered on both sides of that. "the UK but also Europe is quite strong in traditional energy, BP, Shell", and those names benefit from a rising oil price.
Europe is also well placed in renewables — wind and solar — where he says the region is technologically well advanced down that path.
"whichever way the energy market unfolds it's actually probably a positive for Europe"
Asked whether the story is still early, he agrees without hedging: "It's a long way to run."
German Fiscal Spending and the Bank Rerating
Richie asks what has taken over from the fiscal spend that kicked the European move off — whether there has been a baton handover.
Stevenson says the fiscal spend is still central, and ties it back to the top of the conversation. It feeds directly into strategic independence: "Fiscal prudence has been the watch word in Germany", and that has changed as a result of what he calls our friends across the Atlantic.
The result has been a big boost to European industrial and defense spending. He flags the open question of whether that is already in the price, while saying the sector growth itself is unambiguously a positive.
The sector he says has been left out of the discussion is financials. "European banks were incredibly out of favor, incredibly you know lowly valued as a consequence of the Eurozone sovereign debt crisis", and rolling back ten years they were super cheap.
Higher rates changed the arithmetic. A higher interest rate and higher yield environment has been really good for banks' profitability, and the sector has performed extremely strongly.
Bonds Are Tomorrow's Story, Not Quite Today's
Richie puts the case for bonds in a portfolio to him, pointing at his own Telegraph writing: bonds may be having a moment for investors who do not want that correlation with equities, and at some point the payout on a non-risk investment starts competing with equities for anyone seeking income.
Stevenson splits it again, and the short-term answer is defensive. "the direction of travel for bond yields is probably up", which is a challenge for bond investors.
What that argues for is staying short. "shorten the duration of your investments away from the longer bonds towards the less interest rate sensitive shorter duration bonds in the short term"
The long-term answer is where he thinks the opportunity is. "once yields get above 5% and towards 6% then really you are being paid to wait"
And high yields plant the seed of their own reversal. The slowdown high yields cause argues for lower interest rates in due course, at which point an investor is collecting income and picking up capital appreciation as yields fall.
"that may be tomorrow's story, not quite today's story" — but he says investors are really beginning to look closely at it.
A Regime Shift That Puts Yield Back in Total Return
Richie asks about the generational angle she says he handles well in his Telegraph articles: bonds have been out of favor even among people who think about them regularly, so what about a younger generation for whom they were never part of the conversation?
Stevenson answers with his own record rather than a lecture. "I've spent many years not thinking about bonds at all" — they simply had not been of any interest in a growth-focused environment.
What has changed is the environment itself. "it's something of a regime shift in terms of the markets", into a higher interest rate, more value-focused setting.
In that setting the starting yield does more of the work. That initial yield becomes a greater component of total returns, and Stevenson says bonds really have a part to play in the balance of investments going forward.
Asked for one or two things to watch in the week ahead, he does not hedge: "the bond market remains the key", because it is driving everything at the moment.
The two main events of the week — the inflation figures and Jackson Hole — both feed straight back into it. "They both link very directly into the bond market."
Stevenson's bottom line is that the bond market is now the market that sets the terms for everything else, and that a US Treasury trying to talk it down is likelier to lose that argument than win it.
Products, Companies & Tools Mentioned
Nvidia (Its quarterly results are the market's read on whether the AI build-out ever earns a decent return; Stevenson expects revenue about double a year ago and asks whether that is enough)
BP and Shell (Named as the traditional energy strength that leaves Europe well placed if oil keeps rising, alongside its position in wind and solar)
Books & Resources Mentioned
Tom Stevenson's Telegraph articles (Richie points to them twice — on the place for bonds in a portfolio, and on how different ages and generations approach investing)
Scott Bessent's Financial Times article (Where, per Richie, the Treasury Secretary sketched the Iran oil sanctions he was due to detail later that day)
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