Bond investors move to rein in credit risk

Good morning and welcome back. In today’s newsletter:

• Bond investors rein in credit risk

• French business ‘betrayed’ by Lecornu’s move

• Rethink of Europe’s military procurement urged

• Air travel disruption from US shutdown

We begin with the bond market, where big investors are cutting back their exposure to riskier corporate debt.

Who’s shifting: Asset managers including BlackRock, M&G and Fidelity International have gravitated towards safer corporate or government bonds, believing that a huge rally in recent years has left the debt market vulnerable to a sell-off if the global economy falters.

What’s the cause: Some investors fret that the rally, driven by the easing of fears over a global trade war and expectations of deeper interest rate cuts by the US Federal Reserve, has left the credit market pricing in an overly optimistic scenario for global economic growth.

US credit spreads have narrowed, which means investors get little reward for taking extra risks. “Credit spreads are so tight that there’s almost no ability for them to tighten further,” said Fidelity International fund manager Mike Riddell. Read the full story.

As governments tighten their belts, are you wondering what a changed fiscal climate could mean? Join us this afternoon for a live Ask an Expert Q&A with Chris Giles, the Financial Times’ economics commentator.

Here’s what else we’re keeping tabs on today:

• Economic data: The Eurozone, Italy and the UK report international trade figures for August. Italy also releases inflation rate data.

• Central banks: European Central Bank president Christine Lagarde participates in the IMF/World Bank annual meetings in Washington.

• Results: ABB, Bank of New York Mellon, Charles Schwab, Interactive Brokers, Kinnevik, Nordea Bank, Travelers, United Airlines and US Bancorp report earnings. See our Week Ahead newsletter for a fuller list.

Five more top stories

1. French Prime Minister Sébastien Lecornu’s compromise budget has sparked a backlash among business leaders, with tax raids on big companies branded a “betrayal” of previous government promises. Lecornu pledged on Tuesday to suspend President Emmanuel Macron’s signature pension reforms but kept a windfall tax on big companies.

2. Exclusive: Europe must rethink military procurement to keep up with the fast-changing world of drone warfare, the new boss of German start-up Stark has said. Uwe Horstmann’s appointment comes after German defence minister Boris Pistorius said yesterday that the country planned to invest €10bn in military drones.

• Military capabilities: The US Department of War’s focus on the enemy within may reward the enemy without, writes Jacquelyn Schneider, a Hoover fellow at Stanford University.

3. Airlines are facing cancellations and disruption as the US government shutdown enters its third full week. The freeze on federal government funding, which began on October 1, means air traffic controllers are working without pay as “essential workers”. Read more on how the staff shortfall at US airports is affecting air travel.

4. Exclusive: The head of Saudi Aramco has warned of a global oil shortage on the horizon and has called for a return to spending on exploration and production, after a decade in which the energy industry turned its back on the search for new oil. Read the FT’s interview with Amin Nasser.

5. Exclusive: Ten lossmaking artificial intelligence start-ups have gained close to $1tn in valuation over the past 12 months thanks to large investments into the AI sector. But the increase is adding to fears of a bubble in private markets that could spill over into the wider economy.

The AI Shift: John Burn-Murdoch and Sarah O’Connor explore how AI is transforming the world of work in our new weekly newsletter. Sign up here.

FT Investigation

US President Donald Trump and his family have built a rapidly growing digital assets empire over the past year. This has been fuelled by a boom caused by the administration’s own industry-friendly policies. In the first of a two-part series, FT reporters unravel how Trump companies made $1bn from cryptocurrency.

We’re also reading and listening to . . .

• Seeds of growth: Nobel laureates have shown that turning a country into a cauldron of new technologies beats a construction-centred strategy, writes Daniel Susskind, professor of business at Gresham College.

• Selling youth: Spermidine’s potential anti-ageing effects have spawned a thriving supplements market, even as experts call for more evidence on its claimed benefits.

• Value erosion: Talk of changes to UK pension tax-free lump sums have spooked investors — but few consider the opportunity cost of cash, writes Jonathan Guthrie.

• Behind the Money 🎧: Madeleine Speed discusses the scandal that rocked Nestlé and the wider problems the world’s largest food and beverage group has been facing.

Graphic of the day

Trump has floated the sale of US-made Tomahawk missiles to Ukraine, a move that could bolster Kyiv’s long-range strike capability against Russian targets. The US president is expected to discuss potential deliveries with his Ukrainian counterpart Volodymyr Zelenskyy at the White House tomorrow. Here is what you need to know about the weapon.

Take a break from the news . . .

After almost being wiped out after the second world war, wolves are making a comeback to Europe. In the forests west of Stockholm, Kate Maxwell and her daughter Lyra enrol in a wolf-spotting adventure in pursuit of “the shyest of creatures”.