Hartnett Bonds Finally Bringing The Heat

Hartnett: Bonds Finally Bringing The Heat

BY TYLER DURDEN MONDAY, JUL 27, 2026 - 12:45 PM “Smarter politically for Fed to hike next week, not wait until September, no?” - Zeitgeist quote from latest Michael Hartnett Flow Show Two weeks ago we were delighted to see that none other than Goldman's top derivatives trader, Brian Garrett, echoed what we had been warning for nearly a year, namely that the real risk to AI stocks was not within the stock market at all, but rather with bonds, where spreads had been aggressively ramping wider in recent weeks as the market's concerns about return on hyperscaler investment once again spilled over into credit land in the process crushing semiconductor/memory stocks, amid fears the relentless capex tsunami would hit a brick wall and spark a market crash as hyperscaler capex has firmly cemented itself as the primary source of the global credit impulse. Then, one week ago, Garrett doubled down and warned that credit pain is about to get worse, while the increasinglybroken market means that the S&P has been an increasingly poor proxy for the average stock’s performance (low correlation, high dispersion, etc) and that disconnect showed its hand in the cross asset sphere when Garrett highlighted AI bond market anxiety - "hyperscaler spreads widening, CDS blowing out, deal concessions expanding, etc." This disconnect, the Goldman trader warned, wouod have yet another opportunity to manifest as we get one fifth of the S&P print earnings this week (GOOGL and TSLA the main focus on Wednesday, as these are the “ROI on capex” posterchildren). Well, he was right: not only did hyperscaler spreads explode... Carnage in hyperscaler bond land: IG bond spreads exploding every day, as credit investors refuse to fund memory chip purchases any longer. CDS are following.​ For now, stocks are completely ignoring what is going on wit bonds pic.twitter.com/oeIlRSLnF5 — zerohedge (@zerohedge) July 23, 2026 ... but Credit Default Swaps for the group just hit the widest on record! There we go: Hyperscaler CDS just hit record wides, led by a disintegrating ORCL and SPCX. And today the "supersafe" names finally ripped.​

​ Bond market is done funding this negative ROI lunacy pic.twitter.com/Za8GPes5H3 — zerohedge (@zerohedge) July 24, 2026 Not surprisingly, stocks puked with chip names plunging despite solid earnings from GOOGL and INTC, as the market is finally freaking out about the $64 trillion question: if bondholders are no longer funding the AI party, where will the money for all those massively overpriced memory chips (not to mention cash incinerating and negative ROI) frontier models come from? We were delighted to see that the focus on fixed income as the market's weakest link was also the main topic of Michael Hartnett's latest piece, titled appropriately enough "Bonds bringing the heat" (available to pro subs), and where he writes that "the highest 30-year yield (5.2%) since Jun’07, 30-year real yield (3%) since Nov’08, US tech bond prices at 2-year lows" means tighter financial conditions (FCI) are surprising more than profits (EPS). To Hartnett, this paradoxically ends only once the Fed hikes to calm the long-end; and yet rate hikes are hardly what stocks want to see, and so watch the “up in bond yields, up in bank stocks” bull combo flipping to “higher yields = lower banks”... to Hartnett this will be the trigger for overdue risk asset deleveraging, one where being long the US dollar is best hedge for hawkish Fed. Continuing his analysis on the tech/chip rout, Hartnett writes that the lead indicator for industrial cycle are “blue collar semis” (Texas Instruments, Analog Devices, NXP, Microchip, ON, STMicroelectronics, Infineon, Monolithic Power) and these are down 21% from June peak (Chart 3)...