Weekly Market Update: 21st Aug
21/08/2026
Rachel Winter discusses the intervention into the US government bond market, a record high for Eli Lilly, and UK inflation since 2015.
Transcript
Good morning and welcome to the Killik & Co market update.
There has been a lot of talk about US national debt and US bond yields this week.
Let’s take a look at the level of US national debt – here it is over the last 20 years. It has recently gone above the $40 trillion mark. It has more than quadrupled over this time period. I’ve highlighted two periods there when debt rose particularly quickly – the global financial crisis and Covid, when the government borrowed more to support the economy in times of difficulty.
The government borrows money by issuing bonds, and when these mature it has to issue more. If bond yields are higher, the government will have to offer higher yields on the newly issued debt, so higher bond yields are generally bad news.
Here are the yields on US 30-year government bonds. You can see the yields have crept up recently to over 5.2% - the highest level since 2007. This shows that investors have been selling the bonds, which has the effect of pushing up the yields. This could be for a number of reasons – investors don’t like holding bonds that pay a fixed rate of interest if they expect inflation to rise, they might be concerned about higher levels of US national debt, and also a lot of companies have been issuing bonds recently, including a lot of big tech companies, so there will be a bit of excess supply and insufficient demand.
The US treasury made a big intervention into the bond market this week. It is issuing short-dated government bonds, which will raise cash for the government. It is then using this cash to buy back US long-dated government bonds, which will have the effect of pushing up the prices on long-dated bonds and therefore lowering the yields.
Here’s the 30-year government bond yield just for this week. You can see how yields dropped sharply following the intervention, but the relief was short lived and yields quickly went back the other way – partly because the federal reserve released the minutes from its last meeting, showing it is still concerned about inflation and might be looking to raise rates. We therefore appear to have the US treasury and the US federal reserve pursuing slightly opposing goals at the moment.
When long-dated bonds are purchased from the existing holders, it has the effect of introducing more liquidity, or dollars, into the economy. This reduces the value of the dollar. We’ve seen the exchange rate move this week - £1 will now buy $1.36, while back in June it would only buy $1.32.
We’ve also seen evidence of investors moving into so-called hard assets to protect themselves against a weakening dollar – here’s the price of gold, which has started rising again recently.
Shares in Eli Lilly this week have hit a new record high, thanks to the company’s success in the obesity drugs market. Here’s the ten year chart – the shares are up from $80 in 2016 to over $1,260 today.
However, despite the rise in the share price, the shares are not necessarily as expensive as they have been previously. When we’re measuring how expensive a share is, we often look at the price/earnings ratio, which compares the price of the shares to the amount of profit the company is making. A low ratio means the shares are cheaper. Here’s how the ratio has changed for Lilly over the last five years – it was well over 100 in 2023/2024, but it has since declined to around 40. The company’s profits are expected to keep rising, and so if the share price stayed the same, the ratio would go down.
Separately, I’ll just quickly mention another bit of big news in the healthcare sector this week – shares in Moderna went up 177% on Wednesday when the company announced good results in the clinical trials for a skin cancer vaccine that it’s developing with Merck. Despite the rise this week, the shares are still well below their 2021 level when investors bought in because of the company’s Covid vaccine.
And lastly, the latest Uk inflation data came out this week. The figure for July was 2.9%, up from 2.6% thanks to higher energy prices.
Prices in the UK are now 42.9% higher than they were back in 2015. On here we’ve highlighted the individual inflation rates of particular items. Olive was a standout with inflation of 132%, and newspapers, up 151%.
Inflation for water supper, electricity and retirement homes was far above the overall rate of inflation. Inflation for garments, or clothing was significantly lower the overall rate, which makes sense given the rising prevalence of lower cost stores such as primark.
The items in green experienced deflation – personal computers, thanks to improvements in technology, charges by banks, and at the bottom, fees and charges of investment companies, likely due to changes in regulations that have rightly forced companies to offer fair value for their services.
Next week – results from NVIDIA, which always reports much later than most other companies.
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