Futures are flat as interest rates and credit risk continue to buffet currency pairs. Unlike the PIIGS crisis of 2008-2009, the FROGS (French Oversized Government and Social Security) crisis of 2026 threatens the EU’s second largest and the world’s ninth largest economy. France’s yield premium over German bonds recently reached 152 bps, the highest since 2011.

Bond investors are using the “R” word amidst a very troubling macroeconomic backdrop.

Futures are up sharply on a jobs report so disappointing (29K vs 84K expected, 4.2% unemployment) that it would give the Fed a little wiggle room re their next rate increase. Unfortunately, it also reinforces the notion of an economic slowdown.

Note that the 10Y reached the June 2019 highs. Of course, back then CPI was 1.6% – far below today’s 3.4%.

Because I took 10 years out of my finance career to write screenplays, I have an admittedly overactive imagination. While I have the MBA/CFA training and decades of actual Wall Street experience, I have no trouble imaging scenarios that are much darker than those offered by the talking heads on CNBC. With that proviso in mind, this is the scenario for the next 5 years that keeps me up at night. There are worse ones, but this one is arguably more plausible.

 *. *. *

Assumption: Iran outmaneuvers Washington in the coming weeks, through drone strikes on Gulf export infrastructure and selective passage through Hormuz, and WTI rises from ~$90 to $118 (Case A) or $131 (Case B) by early November.

Thesis: The oil shock exacerbates 3% inflation, the Fed in hiking mode, a 10-year at a 24-year high and debt above 100% of GDP. It pulls the bond market’s peak forward to 2027, likely triggers a recession, and forces Washington into mild financial repression by 2029–30 in order to manage the growing debt.

How it Would Get Ugly

• Russia–China coordination. Russia gains an oil windfall; China, facing a larger import bill, leans on Russian and Iranian supply paid in yuan and gold. Expect joint patrols near Alaska and Japan and gray-zone pressure in the Baltic, but likely no formal alliance. The worse-case scenario contemplates an opportunistic formal alliance that takes advantage of the depletion of US arms.
• AI in markets. Correlated trading algorithms make a Treasury flash event likely (≈50%), and deepfakes or payment-system attacks are a real risk (≈35%). AI-driven job cuts deepen the recession and drive sentiment to new lows.
• AI at war. Cheap autonomous drones are how Iran effectively wins the war. By 2030, lethal engagements without real-time human approval will be commonplace. The tail risk is an AI early-warning false alarm in a crisis involving Russia and/or China.

What to Watch For

Q4 2026: oil spikes, midterms held amid high gasoline prices, Fed hikes in December. 2027: debt ceiling binds (~May), 10-year peaks, recession begins. 2028: X-date fight (~February), yields fall, stocks bottom early, presidential transition is the peak window for Taiwan risk. 2029–30: policy holds the 10-year near 4.5–5% while inflation runs 3.5–4.5%, so bondholders’ real returns turn negative.

Watch: WTI in December (below $100 means the squeeze failed; above $140 means worse); the 5-year inflation forward (above 3% signals unanchored expectations); auction tails and Japanese selling; the debt-ceiling timeline; and any week in which Russia and China move in the Baltic and around Taiwan at once.

Bottom line

No Treasury default, no U.S.–China war, no dollar collapse, but a costly replay of the 1970s: a 2027 yield peak, a recession, and years in which inflation shrinks the real value of the debt – and of savers’ bonds. The downside tail is oil above $140, a missed Treasury payment, or a military false alarm, any of which would push the outlook toward the darker case.