Fed Under Siege, Bond Vigilantes Back in Town

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The Labor Market Mirage & Fed Sabotage

Welcome back from the long weekend. Markets opened this week with the same theme that’s haunted the last twelve months: soft economic underpinnings dressed up in political theater.

The August jobs report—arguably the single most market-moving datapoint this side of CPI—is being teed up as justification for the Fed’s next move. Consensus is bracing for just ~75,000 payroll gains. That’s barely a pulse. More troubling, unemployment looks set to climb toward 4.3%. Context: this would mark the weakest three-month hiring stretch since the 2020 lockdowns.

And then came the kicker. Chair Powell admitted earlier figures may have been overstated by as much as 800,000 jobs. Revisions are shredding the narrative of a “resilient” labor market. Translation: the data you thought you could trust was inflated, and nobody caught it until now.

Meanwhile, the independence of the institutions producing these numbers is under direct assault. The White House just replaced the head of the Bureau of Labor Statistics days before the report dropped. And one Fed governor is literally suing the administration over an attempt to oust her mid-term.

The optics? Rotten. What should be a data-driven debate on whether the economy can justify easier money is instead a political tug-of-war. The Fed is walking into September pinned down: markets already pricing in rate cuts, Washington demanding them, and credibility leaking from every pore.

The key risk for investors isn’t just whether the Fed cuts—it’s whether the market has priced in a rate path built on sand. If the labor market isn’t just “slowing” but fundamentally weaker than reported, then every model using that data is skewed. And that’s when risk assets get blindsided.

Bond Vigilantes Strike Back

While the Fed wrestles with credibility, bond markets are screaming. Yields across the developed world are ripping higher, a global sell-off that has the hallmarks of a classic bond vigilante revolt.

U.S. 30-year Treasuries are approaching 5%, levels unseen in nearly two decades. Across the Atlantic, long-dated German bunds trade north of 3.4%, French OATs at 4.5%, and U.K. gilts at nearly 5.7%. Japan—long the poster child of yield suppression—is staring at a 30-year north of 3.2%.

Why the carnage? Start with supply. Governments are issuing debt at a torrid pace. Washington is running trillion-dollar deficits with tax cuts still in play. Europe is leaning on stimulus to paper over stagnation. Investors are finally choking on it.

Layer in tariffs. A U.S. court just ruled that most Trump-era tariffs were unlawful. They remain in place pending appeal, but if struck down, it rips a hole in the administration’s fiscal math. Tariff revenue was one of the few “offsets” to spiraling spending. Lose that, and the deficit balloons further.

And then there’s demand. Pension funds, once buyers of size, are pulling back. Foreign central banks—especially in Asia—are diversifying away from Treasuries. That leaves a market saturated with issuance and too few natural buyers.

The result: yields ratchet higher, and every corner of the market feels it. Tech names already under strain from slowing China demand and new domestic competitors (think Alibaba’s AI arm and DeepSeek’s rise) are selling off hard. Nvidia, AMD, and Taiwan Semi are all bleeding. Gold, meanwhile, surged above $3,500 an ounce this week, a clear sign that capital is hunting for a safe-haven while bonds torch portfolios.

The last time bond vigilantes had this much leverage, it was the early 1990s. Back then, they forced Clinton to abandon fiscal expansion. Today, the political will is weaker, the deficits are larger, and the Fed is more compromised. That’s not a backdrop for stability—it’s a setup for volatility.

Strategy Spotlight: Defensive Income in a Volatile World

Given this backdrop—fragile jobs data, political interference, surging yields, and equity volatility—investors are hunting for stability. One approach that fits the moment is focusing on strategies that aim for income and capital preservation rather than chasing speculative growth.

Surmount’s AlphaFactory Income Strategy is designed with that in mind. It allocates systematically across dividend-focused equities and bond ETFs, balancing income generation with risk control. The methodology dynamically adjusts based on market signals, seeking steady yield while managing downside exposure.

This is not a “get-rich-quick” play. It’s a way of structuring a portfolio so that in weeks like this—when both stocks and bonds feel like a minefield—there’s still a disciplined framework working in the background. In a world where government bonds are failing to provide safety, a systematic multi-asset income approach can serve as a more resilient core.

The Big Picture

Put it all together:

• The labor market story is unraveling, leaving the Fed’s next moves under a political cloud.

• Bond markets are staging a rebellion, punishing governments addicted to debt and deficit.

• Equities are feeling the strain, with tech leadership faltering and safe havens outperforming.

For investors, the danger isn’t missing the next rally—it’s assuming the ground beneath your feet is more solid than it is. Markets have been conditioned to believe central banks will always step in. But when credibility itself is in question, “buy the dip” turns from strategy to superstition.

We’re heading into September, historically the weakest month for stocks, with data riddled with doubt, fiscal plans in tatters, and bond yields screaming for attention. That combination doesn’t scream “crash” on its own—but it does scream “rethink.”

For HENRYs balancing high income with still-growing wealth, this is the time to resist complacency. Diversify exposures, respect the signals from bonds, and remember: when institutions start bending, markets can snap.

Stay sharp. The headlines want you calm, the tape is anything but.

Not Financial Advice. This newsletter is for informational and educational purposes only. It does not constitute investment, legal, or tax advice. The opinions expressed are solely those of the author and do not reflect the views of any affiliated organizations or institutions. Please consult a licensed financial advisor before making any investment decisions.