Oil, Yields Surge as Trump Rejects Iran Truce

Open AI models target a UN website in the latest incident of autonomous agents gone rogue. Plus, British authorities arrest five men over an alleged plot to attack a U.S. airbase. And an Iran stalemate sends oil prices and bond yields surging. We look at how the world's biggest investors are playing the Treasury sell-off. If not gleeful, they are excited. Why? Because for the first time in a long time, you can buy high-quality bonds at higher interest rates. You don't have to drift into the junk bond category. You can get investment-grade bonds yielding 6%, 7%. It's Monday, September 28th. I'm Daniel Bach for The Wall Street Journal, filling in for Luke Vargas. And here is the AM edition of What's News, the top headlines and business stories moving your world today. Rogue open AI agents have a great deal of money. Aggressively targeted a United Nations trade database, marking the latest security incident involving the company's AI tools. Independent researcher Rowan Howard-Jones used data from AI firm Transluce to uncover how autonomous agents scanned a public U.N. trade and development data hub more than 16,000 times between April and June. When they were blocked from trying to fetch the public data they were tasked with finding, the bots deployed aggressive bypass tactics in what a Stanford cybersecurity lecturer, called borderline hacking. A U.N. spokesperson called the incident an unacceptable breakdown in AI containment, but said no confidential data was compromised. The findings add to a growing pattern of open AI models taking unauthorized measures to access web data following similar breaches of government and university websites in recent weeks. British authorities are investigating a suspected terrorist plot after five men were arrested near an airbase that the U.S. has used in the war with Iran. Police said they got a call just before 1 a.m. on Sunday morning about three suspicious vehicles that appeared to be heading toward RAF Fairford, which is about 100 miles west of London. Heavy B-1 bombers have been photographed loading munitions and fuel at Fairford, a base that's been operated by the U.S. going back to the Cold War. President Trump was asked about the arrest yesterday. Working with Britain, it was an amazing job. We were looking to do big damage to our port. The five men were initially arrested on suspicion of committing offenses under the Explosives Act, and U.K. officials said they are looking into a range of possibilities, including a state-sponsored attack, but it was too early to say where the investigation would lead. Earlier this summer, Iran's Islamic Revolutionary Guard Corps issued a warning saying the U.K. would suffer consequences for allowing bombing raids to be launched from British soil. Well, in Britain, Diesel prices have hit a record high this morning, that as oil prices and global yields are surging after the latest setback in efforts to end the war with Iran. Peace negotiators have been pressing Iran to make concessions on its nuclear program to revive ceasefire talks, something mediators said was a long-shot bid to placate President Trump. On Friday, Trump rejected Tehran's truce proposal that would have opened the Strait of Hormuz and ended the U.S. blockade of Iranian ports within seven days. In his speech to the U.N. last week, Trump said, he was weighing whether to annihilate Iran's government to keep it from gaining a nuclear bomb. Speaking to NBC's Meet the Press, Iran's Foreign Minister Abbas Arachi was asked about a journal report that Trump is planning to resume bombing Iran after November's midterms. We are fully prepared for the time for the war to be resumed. And I repeat, we stand firm in the face of any new aggression, even it comes to a doomsday war. But at the same time, we are ready, we stand ready for diplomacy. It is up to President Trump to choose. He wanted unconditional surrender in the previous war in two days. And now it's eight months that they are fighting with no result. A new aggression would be certainly the same. The U.S. has become more confident that its naval blockade is having a severe effect on the Iranian economy. At the same time, U.S. and Gulf officials said Iran is losing control of the Strait of Hormuz, with millions of barrels of oil passing through the essential waterway. The bond sell-off is continuing this week, with German 10-year bond yields hitting their highest level since 2009. Treasury yields are also close to their recent peaks. For most people, it's a sign of higher borrowing costs and higher inflation. So how are the biggest bond investors marrying those concerns with the very real profits they're making right now? Journal special writer Gregory Zuckerman and reporter Jack Pitcher have been looking into this, and Greg spoke to our Luke Vargas about it. So my colleague and I reached out to some of the bigger names in the investment world who manage money. It's their job, it's their role, it's their task to figure out what to do with all this cash they have as interest rates go higher, as bonds come under pressure. And we did not hear what we expected, or at least I didn't. I had reason to believe that these big investors would be nervous, would be scared, would be concerned about corporate profits, the overall U.S. and global economy. And both stock and bond prices, usually surging interest rates, will get people nervous. And we didn't hear that as much this time. Many, if not all of those that we chatted with this week said that for parts of the economy, for interest rate sensitive parts of the economy, let's say housing, commercial real estate, those kinds of areas, people that aren't sitting on all that much cash, they will feel pressure now. But we're at a really interesting juncture in the economy. We're at a really unique kind of period where the biggest borrowers lately are AI related companies that have a lot of cash and are not very sensitive to higher interest rates. We're not here to dispense investment advice, but I am curious, these big names in money, where, how are they going about exploiting tactical opportunities that they are seeing? Sounds like they are. So a lot of the biggest bond investors look at the current environment and are. Why? Because for the first time in a long time, you can buy high quality bonds at higher interest rates. You don't have to kind of drift into the junk bond category. You can get investment grade bonds yielding six, seven percent. And that's more attractive than they've seen in many years. Now, the caveat here is that higher interest rates send bond prices lower. That's by definition. And we have reason to think that. I think that rates are going to keep going high. The Fed is kind of signaling that. People expect maybe two more interest rate hikes before the cycle is over. So you could feel some short term pain. But longer term locking in these kind of yields is attractive. Our senior markets columnist, James McIntosh, argued in his column on Friday that bond traders were paying too much attention to oil prices, observing that the relationship between 10 year yields and oil is now the tightest that it's ever been. Because theoretically, if oil gets pricey enough to dent spending. And so the economy yields should eventually fall. But I'm not getting the sense from what you're saying that these investors really felt that the market was mispricing the long term economic damage of higher for longer energy. Well, there's a strong argument that the U.S. and even global economy aren't quite as susceptible to surging oil prices as they used to be. We're not as dependent in the United States as a net exporter. So higher energy prices aren't necessarily the biggest concern, but they do flow through. And to higher inflation, stubborn inflation, hence the moves to raise rates longer term, that could help. It could slow things down a little bit and yet not send us into any kind of tailspin or recession and such. It's sort of a ideal world, a win win where inflation potentially slows a little bit and you can lock in some higher yields. That's great for bond investors. It might be OK for equity investors, too. I do have to say that a lot of these investors are glossing over. The biggest concern potentially out there, and that's the unwillingness of the United States and other countries around the world to slow their spending and debt is piling up. So investors really need to keep that in the back of their minds. That was a point I really expected Ray Dalio to make to you. He did. And Ray Dalio does stand out as the one guy who's most fearful in this environment. And frankly, he doesn't invest as much money, invest his own money, but doesn't invest money for others. So in some ways, maybe he's a little more. Objective, potentially, he doesn't have to court clients and make any pitches to them. And he's been warning for years about rising debt. He thinks we're finally at the moment where it's a real big concern and there's no turning back now. So the investor needs to weigh that as they decide what to do with their portfolio. The critical minerals race is paying off. That story after the break. The war in Gaza. Journal reporter Anat Peled says the new claims have given fuel to Netanyahu's opponents. So this isn't the first time that we're hearing about alleged warnings that Netanyahu received about a worrying situation in Gaza and an incoming attack. So we previously heard that there was a call between the UAE president and Netanyahu about a worrying situation. And there were also internal warnings that the Israeli security establishment missed or dismissed as unrealistic. There was a very deeply held view that Hamas would go for something like this. And Israel's attention was very much focused on what it perceived as a bigger threat from Iran and Hezbollah in Lebanon. Netanyahu has rejected both claims about direct warnings to him from Egypt and the UAE. So there are very tight elections coming up next month, October 27th. And Netanyahu has really cast a lot of the blame on his security chiefs. And he basically says that they failed to warn him of an impending attack, that security officials hid vital information about the attack from him, an idea that's kind of gained traction with his videos. Security officials do deny those claims. Netanyahu's office didn't respond to requests about Egypt's claims. The prime minister's office has previously denied there were conversations between the Israeli leader and Egyptian officials ahead of the October 7th attacks. Officials from Egypt and the UAE didn't respond to requests for comment. U.S. officials say the Trump administration has no plans to sell weapons to Beijing after Ambassador David Perdue said President Trump, quote, at one point offered Xi Jinping a deal to transfer, American arms to China. One of the officials also noted that weapon sales to China are prohibited by U.S. law. A spokesperson for the White House and State Department declined to comment when asked whether Trump made the proposal during his summit with Xi last week or at a previous meeting. American weapon sales have served as a lifeline to Taiwan. And while China continues to apply military pressure on the island, Perdue said longstanding White House policy toward Taiwan hasn't changed. While Trump has held off on advancing $14 billion, U.S. and the U.S. will continue to use U.S. military force to attack Taiwan, he said he received assurances from Xi that China will not attack while he's in office. For over a year now, the Trump administration has engaged in a multi-billion dollar government-wide effort to loosen Beijing's clutches on critical minerals. In retaliation to U.S. tariffs, China put export controls on key rare earth elements last year. And after that, the U.S.'s push for a China-free supply chain went up a gear. And as Journal Now reports, the U.S. has been pushing for a China-free supply chain for a long time. Is that the U.S. There is a lot of testing happening at the moment, but it's extraction that has to be some damage. And that's it for What's News for this Monday morning. Today's show was produced by Hattie Moyer. Our supervising producer is Sondra Kilhoff. And I'm Daniel Bach for The Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening.