Burnham faces a daunting first budget, ’debasement’ fears rise as global debt soars, and investors ditch coupons to chase the AI trade.

Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at the fiscal pressures bearing down on Andy Burnham’s first budget, rising fears that governments will inflate away record debt levels, and a surge in zero-interest bonds fuelled by the AI trade.

But first, our number of the week…

$13 billion

That’s how much Nvidia will pay to acquire AI platform Hugging Face, according to a deal announced on Thursday. Hugging Face is one of the leading hubs for open-source AI models, which are free to download and modify.

Sidekick Takeaway: Nvidia’s acquisition makes strategic sense given the firm’s expanding role in the AI supply chain. However, the deal could also be seen as threatening Nvidia’s own client book: firms like OpenAI and Anthropic rely on closed-source models, which are threatened by increasingly capable open-source competitors.

Only have a minute to read? Here’s the TL;DR:

• Chancellor John Healey is preparing Andy Burnham’s debut budget amidst a bond sell-off that’s halved the government’s fiscal headroom. With tax rises or spending cuts on the horizon, the administration faces a painful budget with few good options.
• Gold mining stocks soared 33% in August as investors grew increasingly worried about ‘debasement’ – the idea that governments will inflate away record debt burdens. With G7 debt ratios averaging over 120%, hard assets are seeing renewed demand.
• Zero-interest convertible bond issuance has already reached $72 billion in 2026, nearly eclipsing last year’s total, largely driven by AI-related activity. Investors are willing to forgo a coupon to access AI stocks, especially as volatility rises.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

Anxious Autumn: Burnham Faces Daunting October Budget

Amidst a global bond sell-off and an energy price spike, Andy Burnham could be set for a challenging first budget as Prime Minister.

In October, Chancellor John Healey is set to unveil the debut budget of the Burnham administration. Initially, Healey inherited fiscal headroom of about £24 billion.

Now, following a rise in gilt yields and inflation, that headroom may have dwindled to just £13 billion.

To maintain credibility with the bond market, Healey could be eyeing tax increases or spending cuts – neither of which sit well with Burnham’s campaign promises.

The Burnham trilemma

With the UK’s fiscal position continuing to deteriorate, Burnham’s campaign commitments look increasingly questionable:

• Burnham vowed not to raise taxes on working people, backing Labour’s pre-election manifesto.
• The PM also committed to fully funding the UK’s Defence Investment Plan, which calls for sizeable spending increases.
• But increasing fiscal headroom without significant tax rises or spending cuts could prove impossible – a tension Burnham was forced to confront at his first PMQs this week.

Notably, there’s a third option for Healey to find more headroom: changing the government’s self-imposed fiscal rules.

Yet doing so would almost surely roil the bond market, potentially leaving the UK’s finances in an even worse position.

Sidekick Takeaway: Although the UK’s troubles are part of a wider global bond sell-off, gilts have been particularly punished by global investors. 10-year gilt yields trade at a premium to US, German, and French debt, a sign of persistent policy dysfunction in the UK.

Hard Questions: ‘Debasement’ Fears Rise as Global Debt Soars

In a sign that investors are growing increasingly cautious of traditional currencies, an index of gold mining stocks soared 33% in August.

The NYSE Arca Gold Miners Index jumped sharply last month, marking its best August performance since 1994.

The catalyst was the so-called ‘debasement trade’: the idea that global governments will reduce massive debt burdens by inflating their currency.

Debt ratios across the G7 now average over 120%, the highest level in history. That’s sparked renewed fears of debasement and increased interest in hard assets.

From theory to reality

Although no major government has pursued full-on debasement, investors are growing increasingly fearful about record debt levels:

• In the US, the Treasury’s decision to swap long-dated bonds for short-dated notes helped fuel anxiety. One economist called the move a ‘soft form’ of financial repression.
• Even major governments are growing cautious. The Dutch central bank recently moved billions of dollars worth of gold out of North America, citing ‘crisis preparedness.’
• Spot gold had a strong August, posting returns of just under 10%. Silver, another traditional hard currency, gained just under 15%.

Gold and silver aren’t replacing traditional currencies any time soon.

But these data points indicate that debasement is no longer being treated as a theoretical possibility.

Sidekick Takeaway: Easing investor anxiety about debt will take more than just strong words. Global governments need to show that they can offer a meaningful path toward fiscal responsibility – or debasement fears will continue to grow.

Healthy Interest: Investors Chase AI-Linked Zero-Coupon Bonds

In a sign of strong investor demand for AI deals, AI firms are sparking a resurgence in a niche corner of the debt market: zero-interest convertible bonds.

Zero-interest convertibles don’t carry a coupon. However, they can be converted into stock at a specific price.

Once a small corner of the bond market, zero-interest convertible issuance has already reached $72 billion in 2026. That nearly eclipses 2025’s entire total.

This rise is largely linked to AI-related activity. For example, chipmaker ON Semiconductor completed a major $1.3 billion deal in May.

With investors desperate to access the AI trade, they’re increasingly willing to hold niche assets to do so.

When zero isn’t nothing

The mechanics behind convertibles help explain why investors are comfortable lending without a coupon:

• While investors don’t earn interest on these bonds, they’re still paid another way: volatility.
• AI stocks tend to be highly volatile, giving them a greater chance of eclipsing the bond’s conversion price. That makes the bond’s implicit call option worth more.
• Nicolas Crémieux, head of convertible bonds at Mirabaud Asset Management, noted that the ‘weight of money chasing AI-linked paper’ has helped push coupons to zero.

Zero-coupon bonds account for about 41% of all convertible issuance this year, one of the highest levels on record.

Sidekick Takeaway: Although part of this story is about capital supply, it’s also about capital demand. Just as investors are willing to wade into niche asset classes to access the AI trade, AI firms are increasingly willing to do the same to access the financing they need.

Notices

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