Treasury Yields — Weekly Report, Oct 5

weekly35 SummariesOct 5 – Oct 11

The Story: Treasury yields kept rising after a Fed hike, with the 30-year yield reaching 5.592%, its highest level since 2002. A strong 10-year note auction briefly pulled yields lower, but that decline was characterized as temporary.

The Split: One view puts another 50-basis-point rise in the 10-year yield, toward the high-5% range or near 6%, with yields peaking around late October or early November. Another sees a more durable decline after the midterms, while yields may remain above very low levels.

The Schedule: A yield peak was seen around late October or early November, with a possible durable decline after the midterms. Gold’s $3,900–$4,000 range, Bitcoin’s $83,000 battleground and weekly close, and the S&P 500’s 20- and 50-day averages were cited as levels to watch.

Fixed Income7 Oil6 Bitcoin5 Government Debt5 Interest Rates4 Inflation3 Monetary Policy3 Real Estate3 Artificial Intelligence2

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Key Takeaways

The 30-year Treasury yield reached 5.592%, its highest since 2002, and a decline after a strong 10-year auction was viewed as temporary. A forecast puts the 10-year yield another 50 basis points higher, while another outlook sees yields peaking around late October or early November and falling more durably after the midterms.
The federal funds rate was 4% and the two-year yield was near 4.8%. Rate forecasts ranged from cuts four or five months into 2027 to a possible December hike if Iran-related conflict and higher diesel prices worsened inflation; a cut to 0.5% was warned to risk reigniting inflation.
The S&P and Nasdaq were at record highs, but only 25% of S&P 500 stocks were above their 50-day moving average. Seven stocks represented 35% of S&P market capitalization, while 60% of constituents were in bear markets and 86% in corrections.
The U.S. deficit was put at $2 trillion or more, with banks buying government bills and China also monetizing deficits. The case is that deficit spending sustains liquidity and could lead the Fed to buy Treasuries, while QE was characterized as an asset swap that does not increase the money supply.
Bitcoin and the U.S. dollar both rose over five or six weeks, but Bitcoin lagged gold and the S&P 500 over one to two years. After briefly outperforming stocks and gold from $83,000, Bitcoin fell about 3% for the week to $82,300 as stocks reached new highs.
BMW is targeting a one-fifth reduction in manager roles with AI. The warning is that AI and robotics could displace millions to tens of millions of workers over the next decade, even as the history of ATMs suggests automation can also make branches cheaper to open.
Gold fell 30%–35% after doubling over about a year and a half, while rising nominal and real rates were unfavorable for the metal. Near-term forecasts put gold around $4,000, including a possible $3,941 retest; holding $3,900–$4,000 across multiple closes was viewed as bullish.

GEO-POLITICS

Fiscal Competition — U.S.-China competition was cited as making fiscal retrenchment unlikely; Treasury spending, rather than Fed QE, was said to be helping the economy race ahead in the short term. Congressional reelection incentives may discourage spending restraint, while the administration’s approach appears to rely on growth and a broader tax base to reduce deficits.

TECHNOLOGY

AI and Jobs — BMW is targeting a one-fifth reduction in manager roles with AI. ATMs reduced bank staffing but made branches cheaper to open, while AI and robotics could displace millions to tens of millions of workers over the next decade.

AI Financing — AI financing is described as dependent on continued credit, with industry participants lending to one another. The buildout could be difficult to fund through borrowing at higher rates, and a forecast says rising rates and spreads could choke off debt-dependent AI lending.

Bitcoin Dominance — Bitcoin dominance made higher lows by late 2022 as the Fed funds rate moved above the two-year yield. The prior alt seasons identified in the analysis followed Bitcoin crossing its terminal price; restrictive policy could favor Bitcoin again, while a selective altcoin cycle could include 20 to 25 interesting projects among the top 50.

ECONOMY

Fed Rates — At the time of one discussion, the federal funds rate was 4% and the two-year yield was near 4.8%. Forecasts ranged from cuts four or five months into 2027 to a possible December hike if conflict involving Iran and rising diesel prices worsened inflation; a cut to 0.5% was warned to risk reigniting inflation.

Inflation Targets — A May 2021 inflation surprise of almost half a percentage point did not move the two-year rate. Long-term expectations stayed relatively stable despite increased volatility. Inflation was said to have exceeded the Fed’s 2% target for almost six years. Raising it to 3% could weaken confidence in the Fed’s commitment.

Deficit Monetization — The U.S. deficit was put at $2 trillion or more, with banks buying government bills and China also monetizing deficits. The case made is that these deficits sustain liquidity and may lead the Fed to buy Treasury securities, while QE was characterized as an asset swap that does not increase the money supply.

U.S. Debt — The U.S. deficit was put at about $2 trillion in good times, with interest payments of $1.2 trillion and debt equal to 720% of revenue. A recession could lift the annual deficit to nearly $6 trillion, while the debt-to-GDP ratio was cited at 125%.

Energy Costs — A $115 tank of super-premium gasoline could weigh on consumers if energy prices stay near current levels. The Iran war left Chinese food, oil and gas costs unchanged but drove U.S. fuel and food costs higher, feeding other inputs; an oil shock could drain spending after roughly 8 to 14 months.

Debt Interest — Interest costs were said to drive deficits, and buybacks and rate hikes had not reassured investors about repayment. A 25-basis-point rise could add over $100 billion annually for G7 governments; 1 point on $40 trillion adds $400 billion, 9% of receipts; $50 trillion at 8% implies $4 trillion interest and $6 trillion deficits.

Yield Drivers — The Fed controls short rates but may need purchases to move longer yields, as Treasury issuance and fiscal dominance were said to matter more for funding. The term premium was estimated at 1%, and oil-related inflation risk and near-4% growth were cited as drivers of the 10-year yield near 5.3%.

Mortgage Costs — Homeowners with 2% or 3% mortgages may face variable HELOC rates around 7%, limiting access to home equity, while a 30-year fixed U.S. mortgage rate was put at 7.5%. Rising rates could also make refinancing less useful for extracting equity or lowering monthly payments.

Jobs Revisions — The latest jobs reading was 29,000, while the prior 169,000 report was revised lower and the last two months were cut by about 60,000 jobs. Downward revisions can reverse the market move prompted by initial headlines, and at least 80% of revisions were said to be downward, though initial figures draw most attention.

Consumer Prices — U.S. prices for ground beef, chicken, eggs, and milk rose 20% to 40% over the prior couple of years, while consumer costs in China remained stable and affordable. Lower inflation does not mean prices fall, and necessities could cost 10% to 20% more next year, according to a forecast.

Higher Rates — Higher rates can pressure growth and consumer demand, and rates were described as highest in 20 years. The case is that a more rational cost of capital can clear malinvestment, though the adjustment may bring disinflation or deflation.

Treasury Buybacks — Treasury buybacks increased from $3 billion to $6 billion against roughly $40 trillion in debt, and the amount was called immaterial relative to the debt stock. The stated aim was to dampen volatility rather than directly lower yields, though buybacks were also said not to be lowering Treasury yields.

Economic Growth — Inflation had fallen from over 9% to 3%, growth had returned to roughly 2%–2.5%, and ISM business activity and new orders readings were 61.7 and 60.9. Current capex spending was forecast to end within two years, potentially exposing real-economy weakness; growth could gain momentum if oil fell another $10 or $15.

Consumer Health — High oil prices and tariffs were said to weigh on consumption as wage growth declined. Consumer spending rose 4% year over year, but was characterized as fragile, funded by savings drawdowns and credit-card debt, as consumer credit growth accelerated.

MARKETS

Market Breadth — The S&P and Nasdaq were at record highs, but only 25% of S&P 500 stocks were above their 50-day moving average. Seven stocks made up 35% of S&P market capitalization, while 60% of constituents were in bear markets and 86% in corrections.

Bitcoin Performance — Bitcoin and the U.S. dollar both rose over five or six weeks, but Bitcoin was called a laggard versus gold and the S&P 500 over one to two years. After falling to $83,000, it outperformed stocks and gold briefly, then fell about 3% for the week to $82,300 as stocks reached new highs.

Oil Prices — Oil fell from above $100 to about $87.64 without a resolution involving Iran, while WTI later stayed above $90. The gap between current oil prices and prices for oil a month ahead reflected expectations of recovered supply and normal conditions; high prices could suppress demand and encourage supply.

Oil Shipping Costs — VLCC rates rose from about $50,000 per day to more than $1 million, and shipping costs reached $25–$30 per barrel from $1–$2. The warning is that costly insurance and limited shipping capacity can keep oil delivered to refineries expensive even if screen crude prices fall.

Oil Supply — The Houthis’ closure of the Red Sea to Saudi ships blocked oil shipments to Europe, and the Saudi East-West pipeline was attacked a couple of weeks earlier. Even if peace restored passage through the Strait of Hormuz, rebuilding refineries and restoring gas, sulfur, and helium production could take a couple of years; broader disruptions could take months or potentially years to return to normal.

Credit Spreads — CCC spreads were above 1,000 basis points; riskiest-debt spreads reached November 2022 levels, and the CCC-and-below/BB gap was widest since the mid-1990s. Small CCC/CC upticks had not accelerated, though high-yield bonds weakened faster than rising Treasury yields; broader stress was not present.

Treasury Buyers — Money flowing into Treasuries was said to be slowing as the Bank of Japan sold U.S. debt to support the yen, and Turkey and other foreign governments liquidated holdings to buy oil. Foreign investors were also moving away, although 10- and 30-year auctions drew strong foreign demand, and a foreign pullback could make financing harder.

Fund Flows — Bond funds received $466 billion more than stock funds, a gap historically followed by an average 19% market gain over 12 months. Passive funds were estimated to hold 60% of stock-market money, while 5% 10-year Treasury yields could pull money from equities and higher-yield cash could be reinvested in stocks.

Diesel Outlook — China resumed crude imports and refined-product exports as margins climbed, reserves fell, and refineries restarted, with diesel flagged as a key global supply concern. Russia’s export limits removed 800,000 barrels per day from a roughly 7-million-barrel-per-day seaborne market, and the Putin-Trump agreement’s 3.6 million barrels equaled about 1.3 days of global diesel consumption.

Bond Inflation Risk — Nominal Treasuries are exposed to inflation, while TIPS payments are indexed to it. UK data showed inflation accounted for a large share of bond risk before 2000 and less afterward; TIPS yielding around 3% were called attractive over 12 months, though less advantageous in disinflation and potentially appealing if rates keep rising.

Refinery Capacity — The warning is that oil supply does not match refining capacity, with 30–35% of global capacity reportedly needing repair after destruction in Russia and the Persian Gulf. Mechanical and infrastructure problems at refineries elsewhere make the disruption global, not just an OPEC or Middle East issue; refinery shutdowns can reduce demand for Brent, and higher energy prices could destroy demand.

Bitcoin — Bitcoin was described as a monetary-inflation hedge more sensitive than gold to liquidity, but also as dollar-linked and lacking safe-haven value without positive correlation to gold. After Scott Bessent announced bond buybacks, Bitcoin made a 24% move as investors grouped it with gold as a currency-debasement hedge.

Corporate Bitcoin — Robinhood added $25 million of Bitcoin to its balance sheet in its first crypto-treasury purchase, intended to align with the crypto community. Strategy resumed Bitcoin buying after selling at the bottom and buying back $20,000 higher, while Strive bought 10 times as much that week.

Retirement Risk — Starting valuations and return timing affect retirement sequence risk: withdrawals during negative markets can magnify losses, and expensive markets prompted a recommendation for a 3% rather than 4% starting withdrawal rate. Retail equity exposure was near historic highs and rose across older age cohorts, leaving less time to recover from a major correction.

Gold Demand — China’s People’s Bank of China and retail buyers were described as important sources of gold demand at the margin, while central banks continue to buy in volume; a reported 100-ton delivery went from Russia to China in the past year. An ECB official recommended accumulating gold, a call that could draw non-central-bank investors’ attention to the strategy.

Metals And Yields — Gold and silver typically weaken as rates and the dollar rise, but metals may bottom before yields peak; their strengthening can signal a yield top, while risk assets typically react later. Gold rose from about 2,000 to 5,000 before retreating to around 4,000, while silver climbed from $30 to $125 before pulling back to around $60.

FORECASTS

Treasury Yields — Treasury yields continued rising after a Fed hike, and the 30-year yield reached 5.592%, its highest level since 2002.

Higher — The 30-year yield’s decline after a strong 10-year note auction was characterized as temporary after yields reached a 24-year high. The 10-year could rise another 50 basis points, to the high-5% range or near 6%.

Lower — Yields may top around late October or early November, with the long end expected to peak within about a month. A more durable decline could follow the midterms, though yields may not fall to very low levels.

Dollar Outlook — The dollar was near a two-year high, but its rise did not rule out debasement as the euro and yen may be debasing more. Warnings were that debt monetization or Fed securities purchases could weaken the dollar or prompt a flight from it, while clearing economic excesses could bring significant underperformance.

Gold Prices — Gold pullbacks were framed as buying opportunities, though rising nominal and real rates were unfavorable and gold fell 30%-35% after doubling over about a year and a half. Near-term forecasts put gold around $4,000, including a possible $3,941 retest; holding $3,900–$4,000 across multiple closes was viewed as bullish.

Housing Affordability — Housing costs in the United States, United Kingdom, Australia and Europe have priced young people out of the market, while younger people’s wages often do not match current property prices. Canadian five-year mortgage rates rose from about 1.3% to more than 4.5%, and U.S. rates were near 8%. Builders’ roughly 3% rate offers have not generated enough demand because prices remain high.

Equity Valuations — Equity market capitalization was cited at 235% of GDP, against a historical average of about 90%, and current CAPE readings were reported around 37 to above 41. Historical data link higher starting CAPE to lower subsequent returns, with forecasts for the coming decade ranging from roughly -2% to 2%.

Bitcoin Price Levels — Bitcoin’s key battleground was put near $83,000, close to prior highs of $82,800 and $82,300. A weekly close below could revive the bear case, holding could allow recovery toward the low $90,000s, a dip below $82,000 could retest $82,800 with pullbacks to $77,000 seen as buying opportunities, and below $66,000 would invalidate another outlook.

Housing Outlook — Canadian prices were falling as affordability improved, while U.S. prices had not declined nationally year over year; a sharp U.S. drop was described as politically difficult. Forecasts put U.S. and Canadian home values lower over the next couple of years, while a separate outlook calls for blue-state gains and a limited red-state reset by 2028.

S&P 500 Breakout — The S&P 500 reached an all-time high, but the futures breakout lacked high volume and follow-through, and apparent moves above resistance and below support reversed. The index could return to its prior consolidation range, with the 20- and 50-day moving averages cited as potential support.