# Bond Rout Lifts the 10-Year to 5.2 Percent and Tilts the Fed Toward October - The Fed & the Front End - Week of September 21-27, 2026

> The Fed & the Front End for the week of September 21 to 27, 2026. A run of hawkish Fed speakers, a strong business survey, record diesel and a weak 5-year auction drove the 10-year Treasury yield to about 5.21% and pushed October hike odds to roughly two in three, while the debate split over whether the market has priced too many hikes or too few ahead of Tuesday's PCE report.

## The Fed & the Front End

### Week of September 21-27, 2026: Bond Rout Lifts the 10-Year to 5.2 Percent and Tilts the Fed Toward October

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A week ago, the 10-year Treasury yield had just slipped back under 5% and many people thought the Fed would wait until December before hiking again. Neither view survived the week.

By Thursday the 10-year yield was at **5.21%**, its highest since 2007. The 2-year yield, which tracks where investors think the Fed is heading over the next couple of years, jumped to about **4.9%**. And the odds of a second rate hike at the **October meeting** went from a coin flip to roughly **two in three**.

What drove it was not one data point. It was a steady run of Fed officials saying the same thing, a strong business survey, record diesel prices, and a weak government bond auction, all in the same few days. On Wednesday alone the 10-year yield rose 13 basis points (a basis point is one-hundredth of a percentage point). One CNBC host called it the sharpest one-day jump since the April 2025 tariff shock.

The question now is whether the market has gone too far, or not far enough.

## TL;DR

- **The Fed's own officials pushed the market toward an October hike.** New York Fed President John Williams, Philadelphia Fed President Anna Paulson, Governor Michael Barr, Kansas City Fed President Jeff Schmid and others all signaled more hikes this week. Futures now put October at about 64–67%, up from 8% a month ago.
- **Long-term yields broke to new cycle highs.** The 10-year hit 5.21% and the 30-year hit about 5.43%. A 5-year Treasury auction sold at 5.033%, the highest since 2006, with weak demand. Treasury Secretary Bessent's bond buybacks did not stop the selling.
- **The big split is how many more hikes are coming.** Markets are pricing roughly four more by the end of 2027. Former Dallas Fed President Robert Kaplan and JPMorgan's David Kelly think one or two will be enough. RenMac's Neil Dutta, GMO's Henry Peabody and Goldman's Tony Kim think markets may still be too low.

## What's new

### 1. The Fed speakers chose a side, and it wasn't the dovish one

Chair Kevin Warsh does not like to give "forward guidance," meaning hints about future moves. His colleagues did it for him.

- On [Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjlyota5HS-2BjDmb5fCFvPGluouqVXbdERup7zvZkLA-2BbtEjLDZn1edlt35slaBDjjvJPt6UYL-2Bi86EnRv60xPzNUlPxpWPQKWatlZvFuBEYfw-3D-3Df9rL_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEn9MVVZ11Xugjbnxppffq31P7X0uj1jY-2BCUABSyWfjE8fj91-2F-2BpflxqObtO72KobU0m8Lpu2Ah3m4jdiHge9bFWiUT6vuWj8JK0NQriVWfzcqiMZucBOP2rPKJwoNsb-2BbA-3D-3D) (Sep 24), host Morgan Brennan relayed New York Fed President **John Williams** telling a London forum that "it is reasonable to see another rate hike by end of this year," that "the time for explicit direct forward guidance is over," and that "downside risks to achieving maximum employment have receded." Williams was once seen as a dove. That matters.
- On [Squawk on the Street](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgjjBvvm0HFu7XrihkCqrzYIlgGVoY5gpF-2FXuDkPlYeRmbe7MXCdI6OxSVKR3gCl6DRrxjScwLQU-2Bad-2B1-2BW023AugPyzTADPocLnZM0w75ZXg-3D-3DxRzp_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEgE51Ur-2B7qSvgfB9f-2BX7rONEDmJxZsAcDHYXHUhza91iPJzPc5tHR-2B9hbS02HKjshqjjjVXHMXzql1J1UuC8WHzJZjBG2XDlXUeI-2FKjdgEyvwPtjgxg3Ex-2BdE9tSq4vzdA-3D-3D) (Sep 24), CNBC's **Steve Liesman** reported that Philadelphia Fed President **Anna Paulson** said "some modest further tightening may be warranted." She put underlying inflation at 2.5% to 3%, "well above" the 2% target, and said the gap "has shown little sign of closing." She also said AI investment is now showing up in prices. Liesman listed Williams, Barr, Musalem (St. Louis), Collins (Boston), Hammack (Cleveland) and Schmid (Kansas City) as all leaning toward hikes, and summed it up:

> "The center of the board, Carl, is for more rate hikes."

- On [Marketplace](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgn7-2ByrmuvdxSWMl5snrfK9f9Dz1LnFJDAKXd5G6bOivI0rTQGEWm7W-2BUF3ykvJkG2u7aPTjrcqr8kLNE9EnG3IduJtDr57nCTFPLJ7P7Mu9g-3D-3DveHU_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEjdaR1VbgNFIKQF605-2FlxrCL3AH0qILHpTqkjNz-2FQzzWi3RUvyUuvW-2FB4dLfvgZ6jMp8nmyfDe3VY5rdo25vsczS-2BsxRebmRCgU5YKG4q7TtzsoIKp0yDYgt0EwgA5plOg-3D-3D) (Sep 24), Governor **Michael Barr** was quoted saying "Inflation is above our 2 percent target and not clearly trending toward target in a timely way." **Danielle DiMartino Booth** of QI Research laughed at the idea of Warsh keeping his colleagues quiet: "There is no corralling Fed speakers. None. Zero. Zippo." Nationwide economist **Oren Klachkin** said he expects two more hikes this year, because supply shocks "are not just one-off things" and "are also lasting for longer."

Liesman quoted futures odds of **64%** for the next hike, **68%** for a second by January and **55%** for a third.

### 2. The 10-year yield broke out, and the 5-year auction was a "D"

- On [The Exchange](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOioEbwYyHtxxIBOnGsi-2BxN-2BELHw81KtnkgZfsrPWs8IWMzmKe659nD9RL9ipWHY5PFg-2F-2FVVYz0iyZRmc39ZD0N5IpDUHQbtFGC1zu6EQ5t3Ng-3D-3DvNn1_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEjoKxYreyR1rNrTL01EBXbJQ6oGNaPhbwMN19Rucz0VJMPFK-2F-2BKqOhK-2FRlSfCt8G0olU-2BRGqNaFz5GLR8L6Uqrlq1P49L-2FqentXMuZxTmwUgcZkJdyJ698exAALWIww4zw-3D-3D) (Sep 23), CME's **Rick Santelli** graded the 5-year auction a "D." It sold at **5.033%**, the highest since June 2006, with a 3.3 basis point "tail." A tail means the government had to pay a higher yield than traders expected to find buyers. He sees the 10-year heading to "517 to 519" (5.17%–5.19%), then maybe 5.21%. He also put the move in context: "Since 1980, the average yield on a 10-year note is around 5.5 to 5.6 percent."
- On the same podcast, **Paul Christopher** of Wells Fargo said the October hike odds had jumped to **64%, from 55% a day earlier and 8% a month before**. His read: "the market wants to push the Fed to make sure the Fed is totally on board with inflation control... Now they're pushing for four rate hikes, almost four rate hikes from the Fed to come before the end of next year." He pointed to record diesel at **$6.52 a gallon** and input-cost inflation in the flash business surveys "at its highest level since late 2022."
- On [Unhedged](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOg4rUiN8ixZ8-2BrLUkvKxXQS6EImzoP1EYJDNnYuOKcE6n7ov2thv6yM3USSlfH93ZoOsv0QnH0txFf1CXjVUuV5Jt3nv1heRN2KBE30Wqoavg-3D-3DpO-k_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEomHxSxw4Fg0cvGgsbK99StD8mE43dn1PFAklszhcrnA4KydILD7g9jO9HrfPJ3Vfh7QlFUYZR-2FWJPOEW8JlUFsPDbBhGspFxNUdvYq3y45nctxn-2B0dfLUBGl40z5AYo2w-3D-3D) (Sep 24), the FT's **Ian Smith** said the trigger was a US business survey showing output "rising at its fastest in five years," which fed "this sense that what you've got here... is a U.S. economy that just won't stop." **Katie Martin** said the speed of the move suggests forced selling: "a lot of people in the market were caught on the wrong side of this. There were forced sellers." Her advice if yields take another leg up: "Take cover. Tin hats on."
- By Thursday's close, **Nancy Marshall-Genzer** on [Marketplace](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgn7-2ByrmuvdxSWMl5snrfK9f9Dz1LnFJDAKXd5G6bOivI0rTQGEWm7W-2BUF3ykvJkG2u7aPTjrcqr8kLNE9EnG3IduJtDr57nCTFPLJ7P7Mu9g-3D-3Dm-Dw_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEm9YIdlFDh2221kiL2rz4Fm7oCQsLc5UsKx6pJFGMh-2F6C3HOXr4kkSBQ7s6TN40ECdFAp-2BZIFKSbum-2F1DdFJsGTrnPH9Xfqq-2FlHs7XlyVj-2FDVweC0fZaEUkO37mSt2KqdA-3D-3D) had the 10-year at **5.21%**, "the highest since 2007."

### 3. Warsh's new rule: keep going until the stock market blinks

Several guests zeroed in on one line from Warsh's September press conference. He called the hike "removing policy accommodation," not tightening. In other words, he does not think rates are high enough to slow the economy yet.

- **Meghan Swiber**, US rates strategist at Bank of America, on [WSJ's Take On the Week](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhg3RcTiR3xz5R481WQpSa-2Fn5hB0x0-2FhCEEEu5RIXToMqAqnwkeBptLqyBeSOzkhGQEZ4rEpP6Rs-2BVo5zjxTFOlH4wPNpcL3632N-2BSCmpE82w-3D-3D0ZS7_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBErBp24pm3FMJx6G6CvUaJuPj20RBrEuf-2FLEnv8j5pBF634IoBVmNntCvm2IRzdYJDpwCLHn9MmL6TdvBwjjkf-2B4DdVD4gDqaxRUf2V6fu9p9STswbWPiFz1cObghG4AMpw-3D-3D) (Sep 27):

> "What we did hear from Warsh at the September FOMC meeting is that he doesn't think that rates are restrictive. It really stood out to me that he characterized the hike as removing policy accommodation rather than restricting policy or tightening policy."

She said Warsh has set aside the usual "neutral rate" framework (the interest rate that neither speeds up nor slows down the economy) and is watching financial markets instead. Her conclusion: if the Fed is waiting for a signal from stocks, "they're probably going to keep hiking until they get that signal back from the equity market."

- **Neil Dutta** of RenMac said much the same on [RenMac Off-Script](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhaZdzT-2FQPoRwR-2BzxyzndM21WHXCydbc7OWosgFjY46VzrZgJHHOlh77eDpV5EMa0CVDLjjMAXhL5Ea7klMuLgJEQ2P1Dfdla4hJ-2BsxBqTuYw-3D-3DTuVb_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEsuauAgFXkmjIQFNeXFg7T16WdedkZF5Gt-2FhdYzsa00zlD9AV-2Fo6BuLZNA3kk2e1GGQnH1fDFvJut07I51MEzDT-2BmlmE8eSQ1zroiXmtalXuZcEIeg17xXA5ticCqpgtrQ-3D-3D) (Sep 25): "Warsh hasn't really given much of an off-ramp, right?... He's told you why he's hiked. He hasn't really told us what would get him to stop." His bottom line: "Rates will keep going up until the stock market breaks."

### 4. Tuesday's inflation report: the key number to watch

The Fed's preferred inflation gauge, the PCE price index for August, comes out on **Tuesday, September 30**. The podcasts disagree on what it will show and what it means.

- At his press conference, Warsh put August total PCE inflation at about **3.6%**, core PCE (excluding food and energy) at **3.2%**, and core CPI at **2.4%**, as replayed on [Rebel Capitalist News](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjo31WbfvZTQRjCDBwEtcrm55S7yt7jX2-2FVg2b63F9-2Bt92DyyzdBiWCueXsAhzC9-2BafSMaF97Zg5s3tTWmYyKdXCIJDumLIVT3kkCb7BpCdEg-3D-3DaP7__7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEgGmChAXprrBt73BaUkUNt3SNSWmAoaBrHh21fwi3L9VAVY3biREvbWtCWOujbQF6aJ7kPau-2BggcwpPWrRapq9aPzDnY3J4R6k4AQLWijX5Rydu2owaZf4KXPXHMvIqM9w-3D-3D) (Sep 21). "This summer's inflation readings do not tell me that underlying trends have meaningfully improved," he said.
- **David Kelly**, chief strategist at JPMorgan Asset Management, used [Notes on the Week Ahead](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOg3CvfsCVEXQwnp-2BYdpjv-2BxeMLhhYjPOEGevT6EmY-2BzQiZ5Bh0xR4R1mrEG8fYC5Pxr9PtHf3ShD37DIA2gSNrT3z03lVfpSPuV6qH-2F3Th6ZQ-3D-3DGy7-_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEgIEJsPf92x94VWl14aIRJ5PJUdW1ggesjETQQexb4xCObp6dvLNV1wFgl7mIgpgEw80NYgw74POJHex3d9KWZVsWR8-2F6GdyAUSkK9DeFgq3m-2F3-2FKSKinm5lVi-2FOUWgKjQ-3D-3D) (Sep 21) to explain why those two numbers are so far apart. In July, core PCE ran **0.88 percentage points above** core CPI, "the biggest positive gap in more than 40 years." Normally PCE runs about 0.43 points *below* CPI. His explanation comes down to how each index weights things:
  - **Rent** is 42% of core CPI but only 17% of core PCE. Rent inflation has cooled, which pulls CPI down much more than PCE.
  - **Financial services** are 2.83% of PCE but only 0.2% of CPI. They were running over **14%** inflation in July, adding about 0.4 points to core PCE.
  - **Software** carries about 30 times more weight in PCE than in CPI and was up **21%** by July.
  - Kelly thinks the gap will close with PCE coming down, not CPI going up. If he's right, "the Fed may be satisfied to raise rates just once more at the end of this year." If CPI rises instead, "the Fed may well follow through with the three additional rate hikes that futures markets have priced in."
- Dutta's forecast for Tuesday is a **0.3%** monthly rise in core PCE, which "annualizes to something... close to three percent," "well above the Fed's target." He is also worried about early-year inflation readings, which tend to run hot even after seasonal adjustment: "does that mean that Warsh gets even more hawkish? I am a little bit concerned about that."
- On [Forward Guidance](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjp98HLo1lM2IwvP3naAKAhjF7rFCivTMWDhw7mq-2BPtk-2FYeXtTrTvEcJDRoEoyB3-2BCrMSIK5-2B3ZSUc6txglw8p6IBXnsl1nr-2BhFwJK84aAkMA-3D-3Dh4aQ_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEl78JeXPj0E5X9nGps9MpOtcG0mN0udAkA09ik63ShO7PMXcmuvzXHCVtC8wTmjLPmvd61i72djdP2qWPXOwMH5BMLBpZTNNbf-2FBmJikTcrZ3jewxySlOJDx0-2FepVCPHKw-3D-3D) (Sep 25), the veteran rates trader known as **DCP** (40+ years on trading floors, now also running a school catering business) was blunt: "PCE is going to come in hot the next two months." His evidence from his catering business: beef costs are double what they were three years ago, and diesel costs $7 a gallon in Chicago.

### 5. Bessent's buybacks are not working, according to almost everyone

The Treasury has been buying back older long-term bonds to try to calm long-term yields. It ran a second **$6 billion** buyback this week.

- On [Money Metals' Weekly Market Wrap](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgOxWLu1JnVBZwhmJDkgs9C-2Bb4NGu6Zy7wQqUW6kMSOxUMzJWHwYP0KUTgcCNydSbNy6yqOMItd7uws4n2wmF4QBO-2B9F4jGSCahx4lWpDlGKA-3D-3DjcDG_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEsfvz4XAuawDIHBpm1ocH2JaS3rxDGBq6wxZp3rWt1Dr1phIuMy6lGp2rg1qfSFLAx-2Fl2wfQtu1igQpJsfxfq8bXI7vzIxOi2rbX-2B1-2BxILyXmt-2F3LLP959bSMs-2B0UdYimg-3D-3D) (Sep 25), **Nomi Prins** of Prinsight Global called the $6 billion operations "the sort of toe in the water beta testing" for something larger. She pointed out the size problem: annual interest on the debt is now over $1 trillion. "In order to reduce the debt, you have to buy the debt. But in order to buy the debt, you have to basically create debt."
- DCP on [Forward Guidance](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjp98HLo1lM2IwvP3naAKAhjF7rFCivTMWDhw7mq-2BPtk-2FYeXtTrTvEcJDRoEoyB3-2BCrMSIK5-2B3ZSUc6txglw8p6IBXnsl1nr-2BhFwJK84aAkMA-3D-3DVKTq_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEo-2B3O2YrJLnI0P1H4T7MPJMLyyjbgUhY1sP-2Bifv0eRJQ6KRDpJIFhxVydaCHtKeN-2BAtzG2nrp0GkR8pVHHXmxi2ErcEJlXbJdB-2B7vQUKMGtjZyU8ELx-2FAYtDBQGYtLXr8Q-3D-3D): "You're going to buy 10 billion, but you're going to do a half a trillion in issuance."
- Swiber on [WSJ's Take On the Week](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhg3RcTiR3xz5R481WQpSa-2Fn5hB0x0-2FhCEEEu5RIXToMqAqnwkeBptLqyBeSOzkhGQEZ4rEpP6Rs-2BVo5zjxTFOlH4wPNpcL3632N-2BSCmpE82w-3D-3D_yZK_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEmsnZnty4WDaINcNin8ayngHVDSRpdeJqH-2F-2BcVohci4IVjdPitx4JkPGusU4Hd-2BE6OQIWEoI98cf7KnNO7uE5HnqKaWNDkBAsMV6V87qkCJlR7LN-2BkMhfU8jYnMiP-2B5wLw-3D-3D) explained why buybacks aren't the same as the Fed buying bonds (known as QE): "it's not QE in the sense that the market is getting guidance on where to set policy expectations."
- Reuters US economy editor **Dan Burns** on [Reuters Econ World](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiKDnjKnNMkboyT3qE0eVIgGCaup6bFDqXXu3VIDDsO5F7zvGer-2BK1wunzzPEolDKFMT-2BK41sWNNGOjqS6qlTzRjY9Md2DoB2urb3pLrKSczA-3D-3DxybE_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEgCT0c3X4cEQgNjWCqGtqipkQtrIE4t5Csij6XgGHbXxA40U3lG8kF3IOOhkejXr5a37flbnmY6Hn8b-2FzptNyj7aL-2Fsq82qEDz-2BvdtuyA-2FbM85MpAVvtSQChlZvk2C0Zqw-3D-3D) (Sep 23): "the bond market essentially said, I'm bigger than you." The Treasury market is now **$32 trillion**, up from under $20 trillion before COVID, and interest costs are heading toward about **$1.2 trillion** this year.

## The debate: has the market priced too many hikes, or too few?

Both sides were well represented this week. Everyone agrees the Fed hikes again. The fight is over whether it stops at one or two more hikes (roughly 4.00%–4.50%) or keeps going toward 5%.

### Too many: the Fed stops soon

- **Robert Kaplan** (Goldman Sachs vice chairman, former Dallas Fed president; practitioner) on [Exchanges](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOivS29reuEX2R0sfP4Qa8rINdMheGSWWZ28-2BpX244KZVDBkeojsesxNw3zL8pGFo2D0rNu8OoalkO2sKug0vayBI8RYj4wTgGgYCmqyiqbIaQ-3D-3D1blp_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEu4k-2F9NZ-2FdlC5gQy9V-2F-2F6Mzb5hLlkR0B-2FSfqatYJ0mCcn-2Fn2qiQHFAjis-2BB33PNou2DyGxjOMLxYt-2Fv9mkzQBC-2FcrrKeg3AJiG90qPTb69RbBz1iLBZYNhJFbzXTyAsKQw-3D-3D) (Sep 23) supported the September hike but thinks the market "is, yes, expecting more hikes than at the moment, I think, is likely." He puts the neutral rate at "around four, four and a quarter." So one more hike in December gets the Fed "in the neighborhood of neutral. Maybe I need to do one more to be slightly restrictive." His plan: "I'd be inclined to skip October." What would change his mind: inflation readings that come in "worse than I expected." He also said the parts of the economy most affected by rates, like housing and autos, "are already, in my opinion, not overheated."
- **David Kelly** (JPMorgan Asset Management; practitioner) said flatly, "I do not believe that the Federal Reserve should have raised interest rates last week." He expects one more hike in December and then a pause at **4.00%–4.25% through all of 2027**.
- **Jeff Snider** (Eurodollar University; commentator) on [Eurodollar University](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhbX3vQePvta0HWoT7VwqUHsH6JAr2eBGhF97N3d1CiChIhGV1DBW0IWThvo8qIOHxQ-2BPflXd0XzQMN3l0aFKm4DFNopdsV9075jr7An8hMXA-3D-3Duuz0_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBErqrmG6hfiY424TDtyHKkx83HJ368vLs3hEJYyNUvU6p5ofORqnEKC4FWkjUBR3j3xpWAKgsWHxGuLYJW-2BzCJw5baBZbqmiudZ04kodAIIgUrF6tNkj9N-2BJGb6QVvRiwcw-3D-3D) (Sep 23) warned the Fed could be repeating the European Central Bank's July 2008 mistake of hiking into an energy shock just as the economy turned. His evidence: early in the week, the gap between the 2-year and 10-year yields shrank to just **20 basis points**, the narrowest in about 18 months, and this time it was because the 10-year *fell*. "The front of the curve sees the Fed. The back of the curve, that sees demand." He noted that riskier CCC-rated corporate bonds now pay close to **11 percentage points** more than Treasuries, and that only about 5% of investment-grade bonds sold in early September had 30-year maturities, the lowest share since at least 2020. Companies don't want to lock in today's rates for decades. His warning: "The market may be pricing more aggression at the front than the Fed itself expects to deliver."
- **Gilbert Garcia** (Garcia Hamilton & Associates; practitioner) on [The Exchange](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjij54Bm9iqkACrRJd6SA4DUkaPZl9k684YrUpIRSM5vfqau5gKUQUp58ta6YHHs5J5psmtAROLm9wxLChaF2qeHV9l0lErKpl7CN3hkGd8hQ-3D-3DubD3_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEpVp465Q52bkxjKfxZLCtp6FroR9WLa5siDWDMXXzhOjxWQPjexKeeKGaeAKuGZxEprlvLqXmWt79g6j7p3Y7ia-2BnhDle5wKG-2FyeyzDZgeN-2FSuELmHUtGrVFk2Mj-2BcQqtA-3D-3D) (Sep 25): "The Federal Reserve is making a big policy mistake by raising rates right now." He said consumer confidence is near record lows and housing is "already in recession."
- **Michael Leibowitz** on [Thoughtful Money](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjd3DOu4VOQ9BEAF1-2F3hiQHk7-2FOMeGLGq98hPldYq6HobI3G40EAzVV74jdnEB9DGUYRMdXMkM3b2w1WMYgJl208Q04gkIqwqA2bvvRRuVATg-3D-3DlZrx_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEuitsast9UUft26-2B6slzyCeI0vhnx6bxUUhJOQq5nuxzS5FglnbL35Mr5YksxYvSe47drGZ-2BrqGn5VGcT-2BJtibCF2dVyaw-2BC8hV6l-2FjwNEaTv0XNdu0NMWL7JqbG-2FNoC4A-3D-3D) (Sep 26) said the real (after-inflation) 5-year yield is about **2.70%**, a 5.1% nominal yield minus about 2.30% of expected inflation priced into inflation-protected bonds. He called that "decently restrictive." He also caught an odd detail in the Fed's projections: officials raised their end-2027 rate forecast from 3.6% to 4.1% without changing their growth or inflation forecasts. "If you're telling me that higher rates have no impact on the economy, why are you changing rates?"
- **Chris Whalen** (Whalen Global Advisors) on [The Julia La Roche Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOitBKMkelVTAV2cQOEgOWfZgX8kZI84HqKIg8AftR-2FkYNbfhVpYd3OQhh-2FxKtdA6pNAfAO1M7ndRNXxenz-2FdJaZkXqOeuLE-2BG4X9cHhONuN3A-3D-3D9DlP_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEmq5b99hU8vkpFg7PtytucI5PnCVmNv0-2B1ehTAs1kilrIOVN7Mnoh-2Boz8zNTqQ1DlN0qsGj1zTLzeUQMB2gnaZaMarHhbtHfnpZpHX0XW1fX9StLJwhV4juo4jbAAHzOBA-3D-3D) (Sep 26) thinks Warsh probably hikes in October anyway, but only to protect the Fed's credibility. He then made the contrarian call: fertilizer prices are up eightfold in a year, and if energy and food costs start crushing demand, "you're going to see the Fed cutting interest rates," possibly from the "end of this year going into 2027."

### Too few: the Fed has further to go

- **Neil Dutta** (RenMac; practitioner) thinks the "minimum down payment is that they go three times, basically taking away all the insurance cuts from last year," meaning the cuts the Fed made last year as a precaution. His view on long-term yields: "tighter monetary policy over the... medium-term horizon is the reason why longer-term interest rates have been going up." And even if the economy stumbles, "the strike price on them doing something is probably a lot lower than it was before... because inflation is so far above target."
- **Henry Peabody** (GMO; practitioner) on [Monetary Matters](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOj5wRLLZBUG3A-2F8oXwJ4mqWP-2BQvH-2Fc4YEwh22opIkwyMH6O2cxnNM9TvyPLLPgPHQCBgbH-2BGlNKDyIrMKPP-2F2ajDYolhe4VyS4bzZ1ys68qWg-3D-3D9OE0_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEjYTwlZ8KymcOsb8ULlcMOIWucwPEcRAC9pcVIxXMg9S-2BVmxRxNnY7zzF1gv-2B9wxJzfeXGJ5KwaeFB1y3sXWTnNgEOlXZg4wQMB7UpiuJDZk2C2fMZVaQRkdFuY9BcE3mg-3D-3D) (Sep 24) argued the Fed's rate hikes are hitting a less bank-dependent economy. Big companies and AI hyperscalers locked in fixed-rate debt or borrow from private credit funds, so higher rates barely touch them. Consumers and weaker borrowers take the whole hit: used-car loans are over 7% even for good borrowers, and CCC borrowers pay coupons "probably north of 12." Because tightening works so unevenly, the Fed has to push harder: "In every one of those cases, the Fed has had to move higher than they expected. And in this case, it's perhaps even more acute."
- **DCP** (veteran rates trader; practitioner) thinks it takes a fed funds rate of about **5.0%–5.5%** and a 30-year yield "in the sixes" before the market gets nervous. He listed what it would take to turn bullish on bonds: the Fed signaling it's done ("Not going to happen"), AI spending slowing, diesel refining margins rolling over, and a real drop in stocks. "It's still the pain trade with higher yields."
- **Tony Kim** (Goldman Sachs, global head of hedge fund coverage; practitioner) on [The Markets](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiFhygN4yTOfw-2B2oNPPC5YXYiLaYU33TA4ImPMs4euFvTfuGt9i83UOgACDg-2BsaFWiZjaaf0Qqtk3PQM9jjQ2EK3rIzvVMoSHi44UUL5Xovfg-3D-3D0BN9_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEinjQ4ZHuqzc7Xpzf3kuhSouwkJwjDDac9pX9QiKSjDYAUOxyAaPch2nqIM99qj-2Bz2vXBI-2FLpcHJ8UqGe-2FF-2FrWzl9h6zJcO40VWjzJHGrwTM64fkQIWT-2FeLD6taofD3irw-3D-3D) (Sep 25) pointed to "66 months above target on inflation," third-quarter growth tracking "3% or better," a $2 trillion deficit "at full employment," and hyperscaler spending rising from about **$150 billion in 2023 to probably $1.3 trillion next year.** "The strip's telling you there'll probably be about four hikes, maybe a touch more when all is said and done." (The "strip" is the series of futures contracts that price expected Fed rates.)
- **Dennis DeBusschere** (22V Research; practitioner) on [On The Tape with Danny Moses](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgmrNVpYj9LRXwjwImgtLmoKCh7bQ46WBa45IjyrJ0buOnmoitpMBiYkEXcRwe5nVt5rm32Osj2qYdSg6BxV2UM54N1AYm4M6Xdo8pa3Vzrig-3D-3DCanK_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEnmXMVQE-2Bxotwa-2BbYzMMxdCUohabMwfRhpkU8kEyGxWxDHz8xPKz7engFaf6ZHCCbmwTMDDtwo3Ayqb5jFOSn-2BfWni8hxSBbxD7mJxcKsrlyiX-2FJtQedvXlXzaMxWiJCBg-3D-3D) (Sep 23) sees three more hikes through the end of 2027. His "speed limit" argument: with productivity growth around 2%, an economy growing at 6.5% nominal with 4.1% unemployment is running too hot. He counts AI spending as adding 0.7–1.0 percentage points to GDP growth on its own. He even said he is "rooting for AI to take more jobs," because a slightly higher unemployment rate would let the economy grow faster without inflation.

**The honest read:** the dovish case rests on inflation measurement (Kelly), on market signals (Snider's curve and the lack of 30-year corporate borrowing), and on what the high-rate economy looks like for consumers (Garcia, Leibowitz). The hawkish case rests on growth that keeps beating forecasts and on a Fed chair who has openly tied his next move to financial conditions rather than a target rate. **Tuesday's PCE report is the first real test.** A 0.3% or hotter core print supports Dutta. A softer one gives Kaplan his October skip.

### The term premium question from last issue

Last week's open question was whether 5% on the 10-year was a peak or a floor. The "term premium" is the extra yield investors want for tying money up in long-term bonds instead of rolling over short-term ones. This week the "floor" camp got more support.

- Swiber said bond models suggest long-term Treasuries are "trading cheap," partly because of Iran and uncertainty over how high rates will go.
- Burns cited evidence that the "convenience yield," the small discount the world has historically accepted to hold US Treasuries, has "diminished over the last five, ten years," and that "term premiums... have also begun going up."
- Whalen went furthest: long rates have "structurally reset" and it "has nothing to do with the Fed... Warsh has already lost the 10-year and the 30-year."
- The pushback came from people who see 5% as simply fair value. **Rob Armstrong** on [Unhedged](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOg4rUiN8ixZ8-2BrLUkvKxXQS6EImzoP1EYJDNnYuOKcE6n7ov2thv6yM3USSlfH93ZoOsv0QnH0txFf1CXjVUuV5Jt3nv1heRN2KBE30Wqoavg-3D-3D-5GZ_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEslBrBmrUihnPcwIyoscMZHOOnIRFd1MCyxwMvRnLJ9jQI6c1BlMWwO8MAjy0CpjWPJE-2BQXgvXklH9Ztctp0C-2BAjKTq8tBeGZtVWjdF-2F-2BCkhvHwXd7Z0NkgeKA9qvLLTmw-3D-3D): "Roughly speaking, the 10-year bond yield travels with nominal U.S. GDP growth... Nominal U.S. GDP growth is at six-something percent. Bond yields are at five... This is actually a yield level that makes perfect sense." Peabody agreed: "long rates follow nominal GDP up and down... I don't think we're wildly out of bounds."
- DeBusschere made a subtler point: a Fed that hikes aggressively should actually *lower* the term premium over time, because it reduces the risk of inflation getting out of hand.

## The trades in play

Positioning splits three ways: stay short-term, reach for long bonds, or bet against bonds outright.

**Stay at the front of the curve** (short-term bonds, where you take less risk if rates keep rising)

- **Swiber (BofA):** the opportunity is "more approachable at the front end of the yield curve in bills, in two-year Treasuries, two- to five-year part of the Treasury curve." She expects "more room for the curve to flatten," meaning short-term yields keep rising faster than long-term ones.
- **Christopher (Wells Fargo):** "We wouldn't touch long duration right now, but we would put that money into cash, short-term Treasury bills out to two years."
- **Peabody (GMO):** prefers the "three to five-year area of the curve," which usually does best "when risk comes off." He is underweight long bonds and broad credit, and prefers short-dated structured products such as investment-grade CLO slices, student-loan bonds and non-agency mortgage bonds.

**Buy long bonds now**

- **Garcia:** "This is probably one of the best opportunities to rebalance from stocks and risk assets into the bond market." Three years ago, at similar oversold levels, rates "rallied 110 basis points in less than three months." He is moving from cash into 2–3 year bonds and then 5-year bonds, adding as much duration (sensitivity to rate moves) as risk tolerance allows, and likes high-quality mortgage bonds yielding about 6%. He'd avoid corporate bonds.
- **Rob Black** ([Rob Black Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgL-2FpTH3aiEZtSkeJnEcUUhDMjbvvKxtfRgHr75I9zDrvvMFruho7MlIkJTQJ-2BWD2ngYzYQbhy5inu74RvcqhVMhUE5ivDmJ-2FqaVrF51Pjglg-3D-3D2OC7_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEqDOytPLT9RspimnifpNwzo1va4frmAZHrqvP4x4IIONxZJa70X3Qpjnqz1YaWoUazlqTSEI3A1je18QMXmnM42v6m1YvtHexn8KEmAh8ikzqiHcMrqx6Y12UsDBoiY8hw-3D-3D), Sep 23) said 30-year Treasuries at 5.37% may be "a wise idea to lock in for the income portion of your portfolio."
- Snider cited Bloomberg reporting that PIMCO has started trimming its underweight in long Treasuries now that yields are above 5%. He also mentioned demand for options that pay off if short-term rates fall.

**Wait for better levels, then buy**

- **DCP:** "Do not own SOFR at current levels." (SOFR futures are bets on where short-term rates will be in the future.) He'd buy the 2027–2028 contracts around **94.87**, which would price in only about one more hike from there. He'd get interested in inflation-protected bonds (TIPS) if their real yield reaches **3.00%**, versus about 2.83% now. On 30-year bond futures, he's watching the 103 price level: "If you go through 103, 103.12, you got a really good chance of going to par," which works out to roughly a 6% 30-year yield. He expects a "bear steepener," where long-term yields rise faster than short-term ones. His equity trade: short the high-flying AI names.

**Bet against bonds**

- **Kim (Goldman):** "If one needs to be looking for hedges... for the equity risk, then I do think contemplating shorts in the bond market is the right way to go." He said hedge funds are generally positioned for higher rates ("paid rates"), flatter curves and a slightly stronger dollar, while staying net long stocks. His single best idea: **Japanese domestic stocks**, "more of a Topix-like trade than a Nikkei-like trade."
- **George Noble** (Noble Capital Advisors) on [The Julia La Roche Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhcaW41uOoZPPA0HQA9VhEzBEfJHoEGkJU56drP2jYXDmmGFShQQVtU5Up8pWIZqPSv6WTSEEcLr2M6f9OydK8pMnbXbsxnHxv7IWkEWLCydQ-3D-3Da6Ui_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEoZ7mUQGYCWZwW-2Fk1WBH5dWxfbJdVCoQXi-2FGJWNxunjlSIbWg3QJIBO7g5w5MFtBIce-2FkqxxVP-2F3uLa8tZZZfNRI6Gv92GMutBU6zKC370rhsn7JmBHMR2xRtaSJVbmNAg-3D-3D) (Sep 22): "It wouldn't surprise me if the 10-year is at 6." He'd "run from the typical asset allocation, own gold, own energy stocks, have some cash."
- **Peter Schiff** on [The Peter Schiff Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgYkfotZNE5kRR2ynjLUSy91Ca4amGx04T-2FZYLFDus2ujXztVihnA93ncLkDCqFoT1s3ZV73TOOckpxYNqc-2BzXE-2BrnmQX9kKBS17dCKAHFXzw-3D-3D3MMQ_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEr5GyWoFXnTLmVCHn8vs-2F7tKroEFYP4aL3995bZcD39Wpc-2FzJWI4HGd28xLJ44LzBixdaTYeysUBxQiohvVyQ5euu5yzDYDAKbmIy9l2R-2BSi1pgPZtmDCgBMx40n-2BKOuzQ-3D-3D) (Sep 24) suggested a steepener: short the 30-year, buy the 10-year.
- **Nomi Prins:** add to gold, which is holding around $4,300–$4,400 after pulling back from near $5,500.

## Read-throughs

### Stocks: the average stock is already hurting

- **Drew Pettit** of Roundhill on [Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjlyota5HS-2BjDmb5fCFvPGluouqVXbdERup7zvZkLA-2BbtEjLDZn1edlt35slaBDjjvJPt6UYL-2Bi86EnRv60xPzNUlPxpWPQKWatlZvFuBEYfw-3D-3DKoVj_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEv6BX4gcyM3TRtAgf3GtZRbZPJpJ9GxI-2BtwPT-2BHzFHo15GaMQw84ckRsoRJUcpdpBqYlsxpMSl5y3SFws6G-2F8RvpRYrRoV2Pj2Trq276oaXFGqYiphJMqxjb5RCQL5dRxw-3D-3D) said Wednesday's jump was "very real rate driven, not inflation driven. And to us, that's the biggest risk in equity markets right now." His threshold: "S&P can actually handle a 10-year around 530" (5.30%), but only if earnings estimates keep rising.
- **Jeff DeGraff** of RenMac said the 5-year yield has "broke out," putting RenMac's yield-impact model "in the 10th decile," which usually means "zero returns with the appropriate amount of volatility." In the Russell 1000, he counted **39** stocks at relative-strength highs and **350** at relative-strength lows.
- **Patrick O'Hare** of Briefing.com on [Rob Black Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiwwgfZxJfWrGzzRIHqJoEJyPtjBh7xSAwLihwkgJxoQn7CX9-2BQoPjQ1WowW6uxdCkav2iJuputOulwP3IGyEnyhOBxHzQYZ9-2F0EAuP5O9DLQ-3D-3Djq29_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEtVNm2jDb-2B3qkGSfypSF2MbO-2ByqrWtkMmQW5RBLTVxYppm25W7pRt50eJpESZmjVUH5XJ9zb6KI0rDJI5rRE4tx90Sk5EO0Km7VeGGzHho5E0piD6V2q7gbgYXBnSAfxoA-3D-3D): the equal-weighted S&P 500 was down more than 3% for September while the regular, size-weighted index was up 0.5%. The AI megacaps are holding everything up. "If there's a major risk to the market, it's obviously the AI trade failing."
- **Michael Kantrowitz** of Piper Sandler on [The Exchange](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjij54Bm9iqkACrRJd6SA4DUkaPZl9k684YrUpIRSM5vfqau5gKUQUp58ta6YHHs5J5psmtAROLm9wxLChaF2qeHV9l0lErKpl7CN3hkGd8hQ-3D-3DtRKX_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEn1y2s1-2BN98JFoQO6v5UqPuMqd1EfWsrYHFczUcQ40qnaRUYRfVJ7atEzzn6skz7OWmAcPoxy8Qnz3MIXQJNRYkEL0wjLhoBmE-2Fy8xmVHz34xYngQuIuFAKKK4UgprTUIA-3D-3D) (Sep 25): AI-linked stocks are now more than half of the S&P 500, and the "average stock has done nothing in the last four months."
- For perspective, Kim put the S&P 500's price-to-earnings ratio at 18–19, down from 23 a year ago.

### Housing: mortgage rates back near 7.5%

- CNBC's **Diana Olick** on [The Exchange](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjij54Bm9iqkACrRJd6SA4DUkaPZl9k684YrUpIRSM5vfqau5gKUQUp58ta6YHHs5J5psmtAROLm9wxLChaF2qeHV9l0lErKpl7CN3hkGd8hQ-3D-3DyrPJ_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEvbzY2y9QjK4rmEKWlHxx-2B9E2RmqrBpXxiun-2BKGx35gvcu-2BKGHSAfffAuAntHAGZNIbsxhhhGbxUxG1f-2FCwI2vQh47NHeJWMKepqf-2FUQn8Wcy9ZHx7h7nhQdPW0BT5jblQ-3D-3D): the 30-year mortgage rate hit **7.49%**, up **28 basis points in two days**, compared with a low of 5.99% the day before the Iran war began. On a $450,000 home with 20% down, that is about **$350 more a month**.
- **Robbie Chrisman** on [Chrisman Commentary](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjwl4IzveLVwbMBmR3jhdZyanmH3nMralAUlXts66jQuJ1aSdurcqUIMDHzfKnS-2FjENr3XXXO9oFApWrlGkNv-2BIs3XMXT4XVaT37WPfq-2FW7gA-3D-3DlGEv_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEuTIQyqijWIi2DsoAAwaC3-2BV0BlSRAmXySnY62g-2BkT-2By2fR54OuTHjWbCk2QX-2FjTTI0x9y-2F3xHUqTh-2FNy0qwkWUEDUoeB2v6sRCuxPzp-2Fgvvsdv64kxWRcajTgO8tjyYQg-3D-3D) (Sep 21) said mortgage bonds "remain tactically cheap on spread" but buyers are waiting for Treasuries "to establish a more stable trading range before adding risk."
- **Dave Meyer** of BiggerPockets on [On The Market](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOj7rIcyHNcTr0BUh8mOQxhUdf0KLzTdSs8DOv8DyyiNKMgFJ2ci8EMW83NKBCykhOXPl-2B6f1qhKE-2F2UAECloDpTLhduJzL8UU5OY-2F7hXzgS-2FQ-3D-3D_y6R_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVrH97B4tvrIrSvxUr-2FNJUzZmuJj5Mwjo8jUPSyaK-2BBEq-2BDIPwalCpC51jJXV4sXlLlmbo33g5cHNyts6THdQtSpnucFBfYiEt3tvnzx-2F-2FkxwIJCYT5FBODiMQKw6deOKJIFhOo96r42rpVicj0DeQgtWPrZL8wW9YQ1moSWFK-2BjA-3D-3D) (Sep 22) expects home prices to fall **3%–5%** next year, not crash. "The bond market is deciding everything."

### Credit: stress is starting at the bottom

- Dutta flagged that CCC-rated bond spreads, the extra yield over Treasuries on the riskiest corporate debt, are up **40 basis points in a month and 130 over three months**.
- Peabody expects default rates to be "higher in a year than it is today," though not a spike, and said recoveries on troubled software loans may be close to nothing: "you're going to look at donuts."
- DCP said Small Business Administration 7(a) working-capital loans now cost **12%–13%**. He expects the most pain among companies with $1–20 million in debt: "The little guys in the middle are just getting crushed."
- Leibowitz pointed to companies that borrowed at 2.5% in 2021 and now have to refinance at around 6%. His prediction for what comes next: "They're going to cut employees. They're going to reduce capex. They're going to close stores."

### AI borrowing is now competing with the Treasury

- Warsh himself named "competition for capital" from AI hyperscalers as one reason long yields are up. Burns counted about **$220 billion** of investment-grade bonds tied to data centers.
- Christopher said AI company bond issuance is now about **40% of net US Treasury issuance**.
- **Rob Armstrong** doesn't expect rate hikes to slow this spending: "If a company is willing to eat a 50% price increase on its NVIDIA GPUs, I don't think they're going to sweat on a 100 basis point increase in their interest costs." That matches Peabody's view that the Fed's main tool mostly misses the part of the economy growing fastest.

### Debt and politics

- Smith noted that Treasury bills (debt maturing in a year or less) are on track to approach about **a quarter of all US debt**. That has only happened twice in 20 years: during the financial crisis and COVID. Armstrong's warning: "if you shorten your maturity stack into a rising rate environment, you're just storing up trouble for the future."
- RenMac's **Steve Pavlin** said prediction markets now give Republicans only a **40%** chance of holding the Senate, down about 10 points in a week. That matters for the deficit outlook.

## What changed since last week

- **The 10-year didn't hold under 5%.** Last issue flagged 5.00%–5.02% as the line to watch. It went through it and reached **5.21%** by Thursday's close, versus 4.95% on Monday morning.
- **The 2-year moved much more.** It went from about **4.72%** on Monday to **4.89%–4.95%** midweek. Leibowitz said that over the past month the 2-year is up about 50 basis points against just 6 for the 30-year. The rise is concentrated in the maturities that track the Fed.
- **October went from "probably not" to "probably."** Last week the consensus was that the Fed would wait until December, after the midterms. Now futures put October at 64%–67%, and Kaplan is the rare voice still arguing for a skip.
- **The Fed speakers weren't split after all.** We expected a dove-versus-hawk exchange. Instead, Williams, Paulson, Barr, Schmid, Musalem, Collins and Hammack all leaned hawkish, and no Fed official made the dovish case on the podcasts this week.
- **Bessent stepped up buybacks, which didn't help.** A second $6 billion operation came and went, and yields rose anyway.
- **Still ahead:** the August PCE report on Tuesday, September 30, and three jobs reports before December. Last week's guests expected downward revisions to core PCE. This week, Dutta is looking for a 0.3% monthly rise and DCP expects a hot print, while Kelly argues PCE will drift down over time.

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