Markets are pricing relief. What if we priced regime change?

At the time I am writing this article, S&P 500 and Nasdaq 100 futures touched new record highs this morning, and Brent crude fell 2.2% on the prospect of a US-Iran agreement that would fully reopen the Strait of Hormuz.¹ Bitcoin held at roughly $75,750. The 10-year Treasury yield ticked down two basis points to 4.47%. Across asset classes, the message sounds the same: the worst case has been avoided, equities can resume their AI-driven advance, and the bond market can stop worrying.

This is not the message I take from the past three weeks. And it is certainly not the message Russell Napier took in his 20 May letter, which I would recommend to anyone who still believes the recent move higher in developed-market sovereign yields is simply a story about energy prices.²

Napier's argument, compressed, is that UK 10-year yields are at levels not seen for almost 20 years. Japanese long bonds are at 30-year highs. French 10-years are trading at yields last printed in 2Q 2009, except that in 2009 France's private sector debt-to-GDP was 171%, and today it is 215%. None of this is an energy story. It is the bond market beginning, finally, to price the structural reality that governments now intend to fund their fiscal positions through their commercial banks, that inflation expectations are quietly un-anchoring (UK 50-year breakevens have moved from 3.17% in January to 3.40% in May), and that the policy response to the next recession will not look like 2008 or 2020. It may well look like 1973 with better software.

Napier has a phrase for this: National Capitalism. It describes a world in which the state directs the allocation of private credit, where commercial banks are increasingly conscripted to fund sovereign deficits, where capital controls return in everything but name, and where financial repression ultimately becomes the dominant feature of the monetary system for the next decade.

Importantly, the current rise in long-end sovereign yields is not itself financial repression. It is the bond market beginning to reject fiscal trajectories that, historically, policymakers have eventually responded to through repression, forced domestic absorption of sovereign debt, and structurally negative real rates.

If you accept the diagnosis, the implications for portfolio construction are uncomfortable. Government bonds, the historical hedge, become the instrument of repression itself. Large parts of US equity markets, particularly the AI-led mega-cap complex, continue to trade at historically elevated valuation multiples, offering momentum but limited margin of safety against a recession that arrives alongside higher long-term yields rather than lower ones. Traditional portfolio construction is increasingly being tested by a regime it was not originally designed to navigate.

This is the moment Bitcoin's design was built for. This is not a maximalist argument. It is a structural one. Bitcoin is the only globally liquid, institutionally accessible monetary network with a credibly pre-committed issuance schedule that is not subject to discretionary political intervention. In a world where governments are visibly losing the discipline that has anchored inflation expectations since 1998, where the euro is being quietly redefined into ‘the euro Frankfurt issues’ and increasingly divergent national banking systems are forced to absorb sovereign financing needs domestically. Volatility and monetary credibility are not the same thing. One measures price discovery in the short term. The other measures the integrity of the monetary framework over time.

Whether the strait reopens fully tomorrow or not, National Capitalism does not pause. France's debt service ratio does not retreat. The Bank of Japan does not stop being structurally trapped. The next recession does not become any less of a trigger for financial repression. 

At the moment a regime change of that magnitude is being telegraphed by the bond market itself, the question for institutional allocators dramatically shifts. What is being asked of an allocator in 2026 is different from what was asked of one in 2016. The portfolio is now expected to hedge against a regime its construction was never designed for: bonds that no longer diversify, equities priced for a recession that does not arrive, and a savings system that is, by policy intent, the instrument of its own erosion. The harder question is what an honest monetary system looks like once trust in the current one is no longer the default assumption.

A note before I close. Media reported on Tuesday that Nathan Allman, co-founder of Ondo Finance, has passed away.³ I did not know him personally, and I will not write as if I did. But the work Ondo built — bringing US Treasuries on-chain, precisely the asset class now sitting at the centre of the monetary transition discussed throughout this letter — represents one of the most consequential bridges yet built between traditional financial infrastructure and the blockchain-based rails it will increasingly interact with over time. The fact that institutional conversations about tokenised Treasuries are happening at all owes a great deal to that team. My thoughts are with his family, his colleagues, and everyone at Ondo. We build because the work outlives us. That seems worth saying today.

¹Bloomberg, "Stocks Extend Highs as Hormuz Optimism Holds Firm: Markets Wrap," 27 May 2026

²Russell Napier, The Solid Ground (Orlock Advisors), "The Shock of 26: Higher Bond Yields Combined with Recession Bring Accelerated Financial Repression," 20 May 2026

³Coindesk, "Ondo Finance founder Nathan Allman passes away," 26 May 2026