Long-End Stress, Carry Rotation & AI Credit Cracks

Markets rarely price tomorrow’s risks until tomorrow arrives.

Market Structure — Week at a Glance

Week ending September 27, 2026
Long-End Stress

🧭THE BIG PICTURE

This Week’s Market System

Equity indexes at highs → breadth deteriorating → long-end yields breaking higher → carry getting stressed/rotating → credit starting to question AI capex → energy feeding the whole rates/inflation mechanism.

Major equity indexes hovered near record levels on Friday despite the continued march higher in Treasury yields. Stocks were supported by technology and AI-linked stocks. The Semiconductor Index’s (SOX) 6.3% surge now up 78.9% for the year. The MAG7 Index continued its ramp with another 3.1% surge and the Nasdaq100 gained 3.3% this week.

However, that is not the tale of the whole market. Eight of 11 S&P 500 sectors are in negative territory so far in September, with financials and utilities among those down about 5%. The equal-weight S&P index- which is seen as a barometer for the average stock, was down about 4% in September.

Orderly higher yields = carry fuel.

Disorderly long-end selloff = risk-asset problem.

The 30-year Treasury yield this week reached its ​highest level in over 20 years and the benchmark 10-year yield rose well above the closely watched 5% threshold. The 30-year fixed mortgage rate jumped this week to the high since January 2025, with the 15-year rate to the high since May 2024.

PMI Surge

Treasuries took a pounding on Wednesday with the 10-year Treasury yields surging 15 bps to 5.12%.  after the Services PMI rose to the strongest level since October 2021 (58.7). The Services Employment gauge the highest since June 2022, New Orders the highest since March 2022 and backlogs since May 2022. The Atlanta Fed GDPNow Forecast is currently running at a pulsating 5%. The headline Manufacturing PMI index jumped three points to 57, highest since 2022. Manufacturing New Orders were at the high since April 2022, with the employment gauge at highs since February 2021. The broader composite was strongest since July 2021.

Tariff Relief

The U.S. and China have reached a deal to lower tariffs on $30 billion of “non-sensitive goods” as part of a trade package agreed at this week’s summit between President Trump and Xi Jinping, the White House said. Such a deal would mark a thaw in the trade war and potentially lower prices on a variety of consumer goods.  The Trump administration said China would lower its tariffs on some agricultural goods and seafood, wood products, cosmetics, and medical devices.   The U.S. will cut tariffs on small appliances, toys, holiday decorations, and kids’ car seats. The White House also said China would import 10 million metric tons of U.S. coal in 2027 and again in 2028.

💵Wealth effect vs. affordability/political reality.

• Total money market fund assets (MMFA) increased $15 billion to $7.936 TN. MMFA were up $622 billion, or 8.5%, y-o-y – having ballooned a historic $3.352 TN, or 73%, since October 26, 2022.
• Total Commercial Paper jumped $19.8 billion to $1.462 TN. CP increased $84 billion, or 6.1%, y-o-y.
• Freddie Mac 30-year fixed mortgage rates rose eight bps to 7.03% (up 73bps y-o-y) – the high back to January 2025. Fifteen-year rates surged 16 bps to 6.42% (up 93bps) – high since May 2024. Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 21 bps to 7.18% (up 69bps).

Crucial Understanding: Carry is a funding ecosystem, not a currency pair.

💵CHFJPY: Carry Trade Funding Map Keeps Changing

Carry Trade Evolves, It Doesn’t Disappear

• For the week, the U.S. Dollar Index rose 0.8% to 101.035 (up 2.8% y-t-d)
• On the upside, the South Korean won rose 2.1%.
• On the downside, the Mexican peso declined 2.6%, the Australian dollar 1.4%, the British pound 1.1%, the Canadian dollar 1.1%, the Norwegian krone 1.1%, the New Zealand dollar 1.0%, the Swedish krona 0.9%, the euro 0.8%, the Brazilian real 0.8%, the Swiss franc 0.7%, the South African rand 0.4%, the Japanese yen 0.3%, and the Singapore dollar 0.1%. China’s (onshore) renminbi declined 0.23% versus the dollar (up 4.10% y-t-d).

EM currency losses this week included the Colombian peso’s 3.95%, the Mexican peso’s 2.6%, the Peruvian sol’s 1.7%, and the Hungarian forint’s 1.1%.

BOJ hikes → yen still weak → CHFJPY lower → carry survives.

The carry trade took some heat this week against the dollar with the Japanese yen down 0.3% with but the Australian dollar down 1.4%. However, the rotation continued with the Swiss franc down 0.7%, meaning the AUDJPY and CHFJPY crosses highlighted carry development.

AUDJPY → CHFJPY → USDCHF.

Then CHFJPY provides the inflection. That rejection from the 204.5 2.618 / 8/8 zone after the extraordinary run from roughly 106 is visually one of the strongest charts you have this week. The fact that it is a weekly makes it much more significant than another two-day FX move.

The historically wide rate differential between Japan and the United States has been a central driver of yen weakness and the carry trade, although that cushion is now narrowing. The Federal Reserve’s increasingly hawkish posture has made that divergence still more difficult for Japanese authorities to contain.

Higher Australian yields → wider carry attraction → potentially supportive AUDJPY.

• In reality, funding is a matrix: JPY, CHF, sometimes EUR depending on the cycle; against AUD, NZD, EM FX, equities, credit, commodities, rates, vol structures, whatever offers the return. Different books use different legs for different reasons — funding cost, hedgeability, balance-sheet treatment, liquidity, cross-currency basis, central-bank posture.
• The other part people miss is who is doing it. It is not just macro hedge funds borrowing yen and buying Nasdaq. Banks, dealers, corporates, real-money managers, CTAs, RV books, commodity houses, leveraged funds — they all interact with funding currencies differently.
• So the market can quite easily have: USDJPY softening, AUDJPY still elevated, CHFJPY reversing, and global carry still very much alive.

There is no contradiction there at all. The contradiction only exists if your entire model is “JPY = carry.”

AUDJPY: Reflects Active Carry Being Tested

AUDJPY sitting near record highs tells us carry/risk appetite is still very much alive. AUDJPY first establishes that this is not a generic carry unwind. 109.90 held in the recent pennant, consolidating near the highs inside that huge rising channel. If yen-funded carry were simply being liquidated wholesale, you wouldn’t expect AUDJPY to be sitting up here.

Going back to our bond scenario, a limiting influence upon the US Treasury sell off is the yen carry trade. Its attractiveness as trend yen weakness funds interest in the front-end of the US Treasury market continues to evolve, with the recent fear headlines after dollar yen weakness serving to take pressure off. This may be part of why the US 2s sales have moderated since late July. A former Japanese currency diplomat Furusawa on Friday said that the Bank of Japan plans another 50-75 basis points of rate hikes, adding that another U.S. intervention is possible if the yen returns to this year’s low against the dollar.

Recall during the recent US/Japan joint intervention Japan’s Ministry of Finance made a rare English-language post stating that it had a broad range of tools available to address market-liquidity needs. These included access to the Federal Reserve’s repurchase facility, which would allow Japan to raise temporary dollar liquidity without immediately selling U.S. Treasury securities.

That matters because continued yen-buying intervention could otherwise require Japan to liquidate part of its enormous Treasury portfolio. Such sales could place still more upward pressure on U.S. long-term yields.

Cheap yen funding → higher-yielding/risk assets → commodity currency strength → leverage remains comfortable.

Cheap yen funding supported:

• U.S. Treasuries
• Global credit
• Emerging markets
• Carry trades
• Leveraged macro positioning

EM leverage, yen funding, and commodity-linked currencies all deserve close attention from here.

Risks to the Carry Trade

• Higher Australian yields → wider carry attraction → potentially supportive AUDJPY.
• But: Higher yields → weaker Australian housing/credit → weaker household demand → eventually more pressure on the RBA/economy → potentially negative AUD.

Carry remains alive because the spread still pays. The risk is that the higher yields supporting the carry eventually damage the asset side of the trade.

Higher Australian yields remain supportive for AUDJPY while volatility stays contained, but the longer global bond yields remain elevated, the greater the pressure on Australian housing and credit. If that feeds into weaker domestic growth or forces a change in RBA expectations, the yield advantage supporting AUD can begin to erode. At the same time, rising Japanese yields increase the attractiveness of keeping capital at home. The carry survives while the spread compensates for the risk; the danger is when volatility rises faster than the yield advantage.

With the “carry trade” leverage emerging currency markets are turning increasingly unstable. The Colombian peso fell 3.95%, the Mexican peso’s 2.56%, the Peruvian sol’s 1.7%, and the Hungarian forint’s 1.1%.

This also lends towards major currencies like the Aussie and Swiss Franc.

Swiss Franc Carry Trade

Then USDCHF finishes the argument. The franc reached the bottom of its long descending channel earlier this year and has started basing/reversing. Put the three together and the message becomes:

AUDJPY: carry/risk appetite remains alive.
CHFJPY: the marginal funding preference is shifting.
USDJPY: only one expression of the global funding trade, not its master switch.

Japan wants a stronger yen; Switzerland would actually welcome a weaker franc because excessive CHF strength has been hurting exporters. SNB has said it is prepared to intervene to weaken the franc if necessary.

Structure

FX is expressing both rate differentials and global carry conditions.

📊 Bonds: Treasury Yields Surge

The question is whether it can keep dancing while the Fed, the long end, and funding markets turn up the volume.

U.S. Treasury yields — Weekly change/ year to date

• Three-month Treasury bill rates ended the week at 4.068%.
• 2-year yield: +10 bps to 4.85% (up 138bps y-t-d).
• 5-year yield: + 13 bps to 4.99% (up 126bps).
• 10-year yield: +16 bps to 5.16% (up 99bps).
• 30-year yield: +17 bps to 5.49% (up 65bps).
• Benchmark Fannie Mae MBS yields rose 18 bps to 6.27% (up 123bps).

High U.S. yields continue to provide the return side of the carry equation. So you potentially have a world where the funding currency changes while the incentive to reach for U.S. yield remains strong.

The long end remains central to our thesis. A market can absorb higher yields for longer than many expect when liquidity is ample, credit spreads are tight, and equity momentum is strong. But when the long end rises at the same time as speculative positioning becomes extended, the system becomes more fragile. Higher yields do not have to matter every day. They only have to matter when the market starts caring again. Crude oil’s climb over $90 added another inflationary input after gaining more than $15 per barrel during July.

US 30-Year Yield: Triple-Top Breakout as it Reaches Near 20-Year High

That distinction fits perfectly with the 30-year chart and the “Bessent Put” area. The 30-year is probably the most important cross-asset risk chart after CHFJPY.

AI is increasingly a power-and-finance story, not just a chip story.

• Equities: AI demand is enormous.
• Corporate credit: Fine, but who finances all of it, at what spread, and how much more paper is coming?
• Project finance: Will the power/data-center projects arrive on time and on budget?
• Capital cycle: And what happens to returns if everybody builds at once?

Credit is starting to ask questions that equities have largely ignored.

The AI capex boom looked very different when funding could be assumed to stay cheap indefinitely. Now you have enormous capex requirements, growing bond supply, off-balance-sheet structures and an actual opportunity cost against 5%+ sovereign yields. That is where equity narratives begin running into a capital-cycle constraint.

Recap: Oracle issued a force majeure notice to developer of its massive “Project Jupiter” data center in New Mexico. Other major tech & Hyperscaler CDS widening include Google $GOOG $GOOGL Microsoft $MSFT Amazon $AMZN Meta $META Nvidia $NVDA SpaceX $SPCX Goldman Asset Management underweight largest AI borrowers via Bloomberg TV Amazon $AMZN, Meta Platforms $META & Alphabet $GOOG $GOOGL among the biggest high-grade corporate bond issuers this year as Big Tech funds AI infrastructure projects.

Follows Michael Burry warning on aggressive AI infrastructure investment by Microsoft $MSFT , Amazon $AMZN , Alphabet $GOOG , GOOGL, Meta Platforms $META , and Oracle $ORCL could eventually result in significant write-offs.

• Oracle (10-yr) yields spiked another 37 bps to close the week at 7.34%. This bond was issued in February with a yield of 5.73%. Oracle CDS surged 44 this week to a record 237 bps (2008 crisis high 198bps), after beginning the year at 31 bps.
• Nvidia CDS jumped 11 bps to a record 87 bps, after starting 2026 at 42 bps.
• Amazon (10-yr) yields jumped 18 bps to 5.95%, up 50 bps in a month.
• Microsoft (10-yr) yields surged 19 bps to 5.51% – with a one-month rise of 48 bps.
• Meta (10-yr) yields rising 19 bps this week to 6.13%, Meta yields surged 40 bps in 30 days.

Goldman ​Sachs expects gross debt issuance by hyperscalers ​including Amazon, Alphabet, Meta, Microsoft and Oracle to reach $420 billion in 2027, up 60% from estimated ​2026 levels.

Credit may keep underperforming even without an AI bust. GSAM’s Lindsay Rosner explicitly said the underweight is driven by the coming supply of Hyperscaler debt, not by disbelief in AI. More bonds hitting the street means existing paper has to reprice sufficiently to clear that supply. That’s a classic capital-markets pressure independent of whether AI revenues eventually justify the investment.

Corporate debt maturities test US borrowers in rising rates environment

⁠With that massive AI led borrowing there is about $4.3 trillion of non-financial ‌corporate bonds issued in US markets will mature between 2027 and 2031, a Reuters analysis of LSEG data showed. Annual maturities rise from about $572 billion in 2027 ​to roughly $1.03 trillion in 2030, after many companies pushed debt into ​later years through refinancing.

The burden will be heaviest for lower-rated borrowers. High-yield bond maturities jump from ‌about $68.5 ⁠billion in 2027 to $314.1 billion in 2029, according to LSEG, while investment-grade maturities increase to $512.6 billion from $437 billion.

High-yield debt will account for about a third of all maturities in 2029, up from 12% in 2027.

AI power demand has become a political/economic constraint.

But that also establishes the tripwire:

Orderly higher yields = carry fuel.

Disorderly long-end selloff = risk-asset problem.

Market starting to price risk: AI Hyperscaler CDS spreads blowing out as Oracle hit record high 5 year Credit default swap rose 16.2% on the week across both bid and ask quotes, reaching a record 227.15 bps.

AI power demand has become a political/economic constraint.

Washington is discussing legislation aimed at keeping data-center electricity demand from raising household electricity bills, while Texas and other jurisdictions are already wrestling with grid and water constraints. That’s another reason the next leg of AI isn’t simply “more NVDA”; the bottleneck is becoming megawatts, transmission, water and financing.

 “The world’s banks allocated 15% more capital to the energy sector last year than in 2024, arranging and underwriting deals worth $2.3 trillion, according to… BloombergNEF. Against a backdrop of rising demand spurred by AI data centers, cooling technologies and the proliferation of electric vehicles, banks stepped up low-carbon financing by 16%, with such deals reaching a five-year high, BNEF wrote… Deals backing oil, gas and coal, meanwhile, rose 13% last year, it said.” September 17 – Bloomberg (Alastair Marsh)

The Fed has adopted a tightening bias, but bubble-related constraints suggest it has little appetite for materially tightening financial conditions. It is also contending with the financing of trillions in Treasuries and AI-related debt, along with the risks that come with it. Despite the commentary from Wall Street Journal favorites and self-appointed gurus, tightening monetary policy is no easy task in a rising global yield environment. But that also establishes the tripwire:

• Orderly higher yields = carry fuel.
• Disorderly long-end selloff = risk-asset problem.

 “China’s holdings of US Treasuries have fallen to the lowest since August 2008, underlining a shift in Beijing’s management of its reserves and a deepening rift between the world’s two largest economies. The value of US government debt held by Chinese investors… fell to $618bn in July, according to… the US Treasury. At its peak in November 2013, China held more than $1.3tn in US sovereign debt.” September 17 – Financial Times (Arjun Neil Alim and Haohsiang Ko

US 10-Year Yield: Oil and Inflation Overpower Safe-Haven Demand

The 10-year yield broke above 4.75% as higher oil prices, persistent inflation and rising term premium outweighed conventional safe-haven Treasury demand. A sustained break through 5% would place the 5.20% region back in view.

Fragile bond markets face unrelenting massive supply.

This isn’t 2016 when bond markets didn’t care about inflation and issuance. We now have trade frictions, geopolitical risk, wider deficits, higher bond issuance and unsettling attacks on federal agencies and the Fed. The jolt higher in borrowing costs comes as the US debt pile has swollen past $40tn, pushing the debt-to-GDP ratio towards an all-time high.

That appears consistent with Bessent’s message: address Treasury-market liquidity through Treasury operations, while leaving the Fed to concentrate on inflation and monetary policy.

• “The US’s national debt has hit a record $40tn as borrowing rises at a historic pace, fueling investor concerns about the state of America’s public finances despite Donald Trump’s vow to bring spending under control
• It has grown by $3tn over the past year, its fastest ever pace outside the pandemic era, FT calculations show.
• ‘It’s that gigantic flashing ‘check engine’ light,’ said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget think-tank America’s national debt has surged over the past two decades, rising from less than $6tn (about $12tn in 2026 dollar terms) at the turn of the century as vast public spending during the financial crisis and Covid pandemic exacerbated yawning budget deficits.” August 19 – Financial Times (Myles McCormick and Kate Duguid)
• Interest expense on Treasury Debt rose to $118 billion last month, second only to the $251 billion of expenditures at the Department of Health and Human Services (i.e., Medicare and Medicaid). Department of Defense expenditures came in at $86 billion. Interest expense was $40 billion in July 2019. Through 10 months of the 2026 fiscal year, debt service of $1.170 TN ran 14.5% ahead of comparable 2025. The full-year deficit is poised to exceed $2.1 TN (6.5% of GDP), which would be 17% ahead of last year.
• The U.S. federal budget deficit for July jumped ‌to $432 billion, a record for the month, as higher outlays and more negative tariff revenues also brought the 2026 fiscal-year-to-date budget gap to $1.799 trillion, topping the full fiscal 2025 deficit with two months left in the fiscal year and was the largest monthly deficit since March 2021, when it hit $660 billion due to COVID-19 relief program spending. There ⁠have been only two other higher monthly deficits: $864 billion in June 2020 and $738 billion in April 2020

“The world’s governments have created a $2tn monster — a debt-servicing burden that gobbles up tax revenues and has the power to overwhelm elected leaders. More money is now spent on servicing the national debt than on defense in the UK, France and the US; the same is true for more than a dozen states in the 38-member OECD rich countries’ club. Their problem is that borrowing costs have climbed to the highest in almost two decades just as governments are taking on record debt. The total owed by the US government reached a record $40tn last month. This year, OECD nations are expected to borrow $18tn between them, another all-time high. In 2025, the group’s total debt-servicing bill exceeded $2tn, or 3% of GDP.” September 7 – Financial Times (Ian Smith, Sam Fleming and Emily Herbert)

Yields are a Global Threat – Europe’s bond cracks

• U.K. 10-year gilt rose 7bps to 5.37%, still down from last week’s 5.43% intraday high. The 10-year yields remain near the highest level since July 2007, nearing the high back to February 2000.  (up 89bps y-t-d)
• French 10-year yields jumped 13 bps to 4.69%. They are up over 100 bps in three months to the high back to September 2008 4.45%, to the high back to August 2008.For context they saw a 3.78% high during the 2011 European debt crisis. 30-year French yields have surpassed 5.00% for the first time since pre-crisis 2008. (up 113bps y-t-d).

• German bund yields gained eight bps to 3.60% (high since August 2009 and vs. 3.49% European debt crisis high. (up 75bps y-t-d)
• French to German 10-year bond spread widened a further five bps to 109 bps. (up 110bps y-t-d) France now expects public debt to hit 119.3% of GDP in 2026 and 121.7% in 2027, while its borrowing premium over Germany has pushed above 100 bp, the widest since the euro-area debt crisis. At the same time, the government is trying to find €54 billion savings for the 2027 budget amid political resistance.

• Italian 10-year yields rose eight bps to 4.51% (up 96bps y-t-d), multi-year highs.“The cost of servicing Italy’s public debt is rising at ‘an alarming rate’ in the wake of geopolitical tensions, Economy Minister Giancarlo Giorgetti ‌said last week, as the government prepares to update its budget plans for 2027 ‌onwards. Inflation is bound to rise ‘ineluctably’ if the wars in Ukraine and the Middle East continue, Giorgetti told a conference… Under its most recent budget plan, Italy ⁠sees its public debt peaking at almost 139% of GDP this year, replacing Greece as the euro zone’s most indebted country.” September 18 – Reuters (Giuseppe Fonte)
• Greek 10-year rose seven bps to 4.38%, multi-year highs. (up 94bps y-t-d)
• Spain’s 10-year yields gained eight bps to 4.08% (up 79bps).

📊 Risk: What is missing so far is the stress transmission.

Private Credit signs of stabilizing in September

Redemption requests from individual investors eased and investment performance improved after a difficult start to the year, the Financial Times reported Sunday.  Flagship funds managed by Apollo Global (APO), Ares (ARES) and BlackRock (BLK) reported lower withdrawal requests in the third quarter, while redemptions at Blackstone’s (BX) large private credit fund held roughly steady. The figures suggest some of the anxiety over corporate defaults and credit quality may be receding.

• Ares Strategic Income Fund said investors requested withdrawals equal to 13.1% of shares during the third quarter, down from 14.4% in the prior period.
• Apollo’s roughly $15 billion flagship debt fund saw redemption requests fell to 14.7% from 16.8%.
• BlackRock’s HPS corporate lending fund declined to 11.5% from 13.3%,
• Blackstone’s $43 billion flagship private credit vehicle held steady at about 10%.

Despite the improvement, investors seeking to leave the funds still face a backlog. The four vehicles fulfilled less than half of requested withdrawals on average as redemption limits remained in place.

Gates are doing what they were designed to do. The question is why do investors keep arriving at the gate?

De-risking/deleveraging in the emerging markets debt has gained important momentum

• The iShares Emerging Market Bond ETF (EMB) lost 1.3% this week, the weakest performance since May. It’s down 2.4% over EM dollar-denominated bonds (in particular) were taken out the back.
• Mexico ($) yields surged 30 bps this week to 6.92% – the high since March 2009 (up 109bps y-t-d).
• Colombia ($) yields jumped another 21 bps to 7.43% – up 77 bps in a month to a one-year high.
• Yields rose 24 bps in Peru (6.04%),
• 23 bps in Panama (6.40%),
• 16 bps in Brazil (6.59%),
• 15 bps in Chile to a three-year high of 5.85%.
• Argentina yields spiked 90 bps to 11.25% – with a one-month rise of 148 bps.
• In Asia, dollar-denominated Philippine yields jumped 23 bps to 6.04% – the high back to 2008. Indonesia ($) yields rose 18 bps to a three-year high of 6.04%. three weeks, the worst sell off since March.

Weekly summary following the Friday close on September 25, 2026:

• US investment-grade CDS: (58 Friday close) 58 bps on Sept 25th (ranging from 53 to 58 bps intraday).
• High yield CDS: (307 Friday close) 307 bps on Sept 25th, up from an intraday low of 301 bps during the week.
• European Bank (subordinated) CDS: (94 Friday close) 96 bps on Sept 25th (ranging from 93 to 99 bps intraday).
• EM CDS: (142 Friday close) 165 bps on Sept 25th.
• U.S. bank CDS vanilla, Bank of America CDS: (53 Friday close) 58 bps on Sept 25th (ranging from 53 to 61 bps intraday).

Reminder of the Great Gilt 2022 deleveraging

• US investment-grade CDS (50 Friday close) 74 on Aug 12th to 114 bps intraday Sept 30th.
• High yield CDS (301 Friday close) 420 (Aug 19th ’22), to intraday high of 640 bps Sept 30th.
• European Bank (subordinated) CDS (86 Friday close) 179 on August 19th to 289 bps Sept 30th.
• EM CDS (137 Friday close) 331 bps on September 30th, 2022.
• U.S. bank CDS vanilla, Bank of America CDS (53 Friday close) high 119 bps on Sept 30th.

MOVE Stalls at 96 as Global Yield Stress Builds

MOVE (Bond Volatility) Index: Closed the week ending September 25th at 96.00, pulling back after spiking intraday to 104.58 and crossing above 100 for the first time in three months, up sharply from the previous week’s close of 80.64

Markets trading with the view that Secretary Bessent and Chair Warsh have the old “PPT” ready to rock and roll?  The Treasury and Fed won’t tolerate bond or repo market instability, a tough ask in times of extreme indebtedness and leverage during acute geopolitical uncertainty.

📊 Risk: Wall Street playing with fire?

Hyperscalers’ bonds underperforming on almost every metric.

Old debt: cheap and locked.
New/refinancing debt: increasingly expensive.
Credit market: demanding more compensation.

As Chuck Prince famously said in July 2007:
“As long as the music is playing, you’ve got to get up and dance.”

Why It Matters

• Term premium continues to rise
• Treasury supply remains persistent
• Global demand is less reliable

The long end is being set by the market — not anchored by policy.

The Bigger Shift

• Meanwhile global rates volatility is no longer isolated to the Fed. The synchronized repricing in Treasuries, Gilts and JGBs suggests sovereign duration itself is becoming the central macro story.
• That is a major shift.

The Tension

• Rates are tightening
• Carry remains loose

Structure

• Higher lows remain intact.
• Yields continue to compress near resistance, reinforcing that pressure is building

📈 EQUITIES —US Stocks Bifurcation Continues

What Happened

The long bond is flashing stress. Carry remains active. Oil is advancing. Semiconductors are correcting from speculative excess. Volatility is still under 15.

Equity resilience is narrower than the index headline suggests. The market is still relying heavily on technology leadership while rates and oil remain hostile. Whilst the Nasdaq and S&P 500 were higher this week the bifurcation of the market was clear. The Banks were smashed by 1.8%, along with the Broker/Dealers slumping 2.6%. The Utilities dropped 3.1%, and the Transports fell 2.5%.

Change for the Week/ Year to Date:

• S&P500 gained 1.2% (up 13.1% y-t-d)
• Dow added 0.3% (up 7.8%).
• Nasdaq100 jumped 3.3% (up 21.2%).
• S&P 400 Midcaps were little changed (up 10.4%),
• Small cap Russell 2000 declined 0.8% (up 14.3%).
• Utilities sank 3.1% (down 5.7%).
• Banks lost 1.8% (up 6.9%),
• Broker/Dealers fell 2.6% (up 15.5%).
• Transports dropped 2.5% (up 12.8%).
•  Semiconductors surged 6.3% (up 78.9%).
• Biotechs gained 1.7% (up 32.8%).
• With bullion down $94, the HUI gold index dropped 2.4% (up 12.1%)..

• VIX Index: Closed the week ending September 25th at 14.87 (ranging between 14.16 and 15.83 intraday), holding nearly flat compared to the previous week’s close of 14.81.
• MOVE (Bond Volatility) Index: Closed the week ending September 25th at 96.00, pulling back after spiking intraday to 104.58 and crossing above 100 for the first time in three months, up sharply from the previous week’s close of 80.64.
• JPMorgan CDS: Closed the week ending September 25th near 41.05 bps, widening about +8% on the week from the previous close of 38.03 bps.

SMH: AI/speculation has cooled, but the sector has not broken.

Structure

The rally had evolved from recovery into speculative acceleration.

Since that first Fed cut, the broad averages surged, but the real epicenter has been semiconductors, AI infrastructure, memory, and the small group of companies perceived as bottlenecks in the AI buildout. The SMH has become the clearest expression of this historic Bubble impulse. Now we are into rate hikes.

We ask the better question: is AI still lifting the world, or starting to crowd everything else out?

Why It Matters

AI spending remains the dominant narrative, but the credit side is beginning to matter. When Oracle CDS and CoreWeave yields move alongside SMH volatility, the market is no longer only trading earnings momentum — it is starting to price funding risk.

🛢 Commodities; Oil remains the transmission mechanism from war → inflation → bonds.

There are at least three geopolitical risks overhanging the world, the Iran US War, the Ukraine/Russia war and China’s South China Sea maritime claims. All can impact energy and commodities prices, often not as the herd expects though. Keep that in mind. The oil price is an excellent expression of that.

The Bloomberg Commodities Index declined 0.8% (up 31.6% y-t-d).

Energy WTI Crude dropped $7.11, or 7.1%, to $92.41 (up 61%). Gasoline fell 3.5% (up 98%), Natural Gas jumped 10.2% to $3.196 (down 13%).

The energy geometry remains vulnerable:

Three Saudi East-West Pipeline pumping stations are damaged, yet crude backed off because Saudi Arabia found alternative supply routes and China pressed Iran to restrain Houthi attacks. That’s fascinating: China isn’t merely an oil buyer here; its relationship with Iran has become part of the oil-volatility control mechanism.

• Donald Trump said Saturday, September 26, that he has rejected Iran’s proposal to reopen the Strait of Hormuz and end the fighting.  The most concrete near-term diplomatic route to normalizing Hormuz has now been explicitly rejected by Washington.
• Iran continues to say they will not remove their nuclear plans. The specific Iranian proposal was rejected, but the negotiating channel remains open.  Trump told Axios in a phone interview Sunday that he anticipates additional negotiations. Two regional sources told the news outlet that another round of indirect discussions could take place as soon as Monday.
• Iran’s military leadership issued its strongest warning since Donald Trump rejected Tehran’s Hormuz proposal. Army spokesman Mohammad Akraminia said Sunday that Iranian forces are fully prepared for renewed U.S. attacks and that the U.S. would suffer greater damage in the next round. More importantly for oil, Army Commander-in-Chief Amir Hatami explicitly tied retaliation to maritime trade: if Iran cannot trade, other countries will not be allowed to use the region’s strategic waterways either.
• One offsetting physical development separate from the diplomacy: recent reporting indicates Qatar has increased LNG tanker movements through Hormuz to the highest level in more than two months, suggesting escorted/approved commercial traffic is becoming somewhat more workable even though the political dispute over reopening the strait remains unresolved.

Oil moved from geopolitical premium toward physical-market repricing.

Oil price ≠ energy shock.

This energy shock is transmitted through refined products, LNG, shipping, fertilizer, poorer-country fuel shortages and central-bank policy. This crisis differs from earlier oil shocks because the constraint is increasingly refining/product availability and logistics, not simply crude scarcity.

The mistake is watching the barrel when the shock is increasingly occurring after the barrel leaves the wellhead. Refining, LNG, shipping, fertilizer and electricity are where the second-round effects live.

• Diesel/refined products matter more than the crude headline. Refinery constraints, Russian infrastructure damage and Chinese product-market restrictions mean crude can soften while the real-world energy cost remains elevated.
• LNG remains the nastier global transmission channel. Hormuz disruption hits both crude and LNG, and earlier disruption to Qatar caused Asian spot LNG prices to surge dramatically.
• This is becoming a monetary-policy shock again. The global economy initially absorbed the energy spike better than feared, but renewed inflation pressure is now forcing central banks toward tighter policy — exactly what we’ve just seen with the Fed and BOJ.
• Emerging markets are where physical shortages appear first. Pakistan, Bangladesh, Nepal and Indonesia have already experienced rationing, outages or acute fuel/LPG shortages. That’s considerably more important than whether Brent is $102 or $106 on any particular afternoon.
• Strategic reserves solve time, not infrastructure. You can release crude, but that doesn’t necessarily solve shortages of diesel, LNG, refining capacity or shipping. That’s the subtle but important distinction.

A picture tells the story of – diesel crack spread

The latest escalation reinforced the thesis we have followed throughout the Iran conflict: the important question is not the headline size of an attack, but whether sanctions, shipping disruption and damage to regional energy infrastructure begin removing usable barrels and products from the market. WTI’s surge was accompanied by strong gasoline and extraordinary diesel pricing, suggesting the market is increasingly focused on the downstream consequences rather than crude alone.

Crude > $100

→ refined products disproportionately tighter

→ marine gasoil ~$1,529/t

→ shipping costs surge

→ biodiesel suddenly becomes economically competitive

Meanwhile, container freight from China to the U.S. East Coast has already reached roughly $10,948 per 40-foot container, more than four times the pre-war level and getting close to the pandemic record.

An unexpected beneficiary of the refined-fuel squeeze is marine biodiesel. In Rotterdam it briefly fell below $1,000 a tonne while marine gasoil surged above $1,500. After European carbon costs are included, biodiesel is now cheaper than most conventional shipping fuels. Energy transitions rarely proceed in a straight line; sometimes the quickest catalyst is simply making the incumbent fuel prohibitively expensive.

The length of this oil disruption is already longer than the 1990s.

WTI Crude: Geopolitical Premium Returns After 2.618 Completion

For oil, the nuclear language is rhetoric until policy changes; Hormuz, sanctions enforcement and physical flows remain what matters.

Why It Matters

Warsh says inflation is too high → oil and gasoline prices accelerated higher

Not really a surprise given the powerful impulse runs over the past week. the real drama came in oil prices. The next spot to watch will be the long end of the Treasury curve as yields should fall at some point if the Fed proves it will get inflation back to target and keep it there

Developments in the Middle East suggest that it would be highly premature to declare risks to energy and broader commodity markets to have diminished sustainably. 

The commodity complex is no longer moving as one trade. The market is differentiating between monetary hedges and supply-risk assets. The bigger point is that oil remains the inflation panic switch. Crude weakness can loosen financial conditions quickly, but a failed Iran headline would just as quickly restore the risk premium.

Metals: Spot Gold fell 2.1% to $4,285 (down 0.8%). Silver dropped 3.0% to $64.2957 (down 10.3%). Copper added 0.8% (up 39%).

Gold pulled back with rising yields in the usual correlation.

 “China has spent a record sum importing more than 1,000 tonnes of gold this year as the central bank and local investors pour cash into bullion amid rising geopolitical tensions abroad and poor returns on local assets. The world’s second-largest economy spent $158.8bn on gold in the first eight months of the year. That compared with spending of $96.5bn for all of 2025 on 886 tonnes of gold… China is also the world’s biggest producer of bullion, with the total for last year standing at 384 tonnes, according to the World Gold Council.” September 22 – Financial Times (William Sandlund)

Grains: Wheat was little changed (up 39%), while Corn rose 3.2% (up 20%).

A diplomatic effort to end attacks on Ukrainian and Russian grain assets has broadened. Recep Tayyip Erdoğan is leading efforts among grain-importing countries to restore Black Sea trade; Volodymyr Zelenskyy said Friday that India, Egypt and Middle Eastern countries are now involved, while the Kremlin has acknowledged diplomatic contacts. There is still no ceasefire or shipping agreement, so the barrels—well, bushels—aren’t flowing yet.

For WEAT, this sharpens the setup considerably: the present squeze is more a security/shipping blockade than permanent destruction of Russian export capacity. If negotiations fail, Russia’s September exports remain severely constrained, and the bullish physical squeeze persists. But if a maritime ceasefire is agreed, ~53 Mt of Russian terminal capacity could potentially come back far faster than the market might infer from the recent attack headlines. That makes a verified Black Sea shipping agreement the key downside event to watch now.

Key line: Copper confirms the buildout. Oil controls the panic. The long bond prices both

Ahead: Iran, Jobs and RBA

Central Banks: Two central banks will deliver policy decisions.  We get a steady flow of Fed speak Richmond Fed President Thomas Barkin, Federal Reserve Governor Lisa Cook, Chicago Fed President Austan Goolsbee, and Minneapolis Fed President Neel Kashkari are all scheduled to speak at separate events on Wednesday.

• Australia’s RBA sees another quarter-point rate hike is almost fully priced for Tuesday’s decision. Consensus unanimously expects a hike to 4.6% for the first hike since May. That would take the cash rate target up by a cumulative 100bps from February.
• Colombia’s central bank BanRep is widely expected to leave its overnight lending rate unchanged at 12% on Wednesday, but a minority think it could restart hikes.

US Macro:

• The big one is Friday’s US Jobs Report for September.  Non-farm payrolls with a rise of about 75k with an unchanged unemployment rate of 4.1% at Scotiabank. Other job market readings in advance of payrolls including JOLTS job openings (Tuesday), ADP private payrolls that may land around 60k (Wednesday), Challenger job layoffs (Thursday) and weekly jobless claims. Also we get:
• Tuesday. Real house prices are expected to keep falling. Consumer confidence may move sideways.
• Wednesday. The Fed’s preferred PCE gauges of inflation for August on Wednesday with modest monthly real income growth against a flat trend will fund expected strength in real personal spending in a way that further erodes the saving rate. Q2 GDP growth is likely to remain around 1½% q/q SAAR on revision.
• Thursday. ISM-manufacturing, construction spending and a slightly slower pace of vehicle sales.
• Friday. Factory orders.

Global Macro:

• Inflation reports from Australia with August CPI report on Tuesday, followed by September inflation from Switzerland, Tokyo, South Korea, Indonesia, and Peru on Thursday. Eurozone’s September inflation report on Friday.
• Canada GDP  on Tuesday before local bond markets (but not stocks) shut early at 1:30pmET ahead of the National Day for Truth and Reconciliation when markets will be closed on Wednesday.

Chips and AI: Financing the Buildout

• Micron Technology (MU) earnings will be a key read on AI-driven memory demand.
• There is the J.P. Morgan Software Forum,
• OpenAI’s (OPENAI) DevDay where CEO Sam Altman is scheduled to give the opening keynote at the developer event.
• President Trump, House Speaker Mike Johnson, and tech CEOs are expected to meet about AI.
• The three-day NetApp (NTAP) Insight Conference focused on data infrastructure, cloud strategy, AI, and cyber resilience will include participation by Nvidia (NVDA) executives.

Earnings:

Micron Technology (MU), (JBL), Accenture (ACN), Uranium Energy (UEC), AAR (AIR), FactSet Research Systems (FDS) and Kandi Technologies (KNDI). To gauge the consumer we get Nike (NKE), Carnival (CCL), CarMax (KMX), Conagra Brands (CAG), McCormick (MKC), Cal-Maine Foods (CALM), and Vail Resorts (MTN).

With equities increasingly bifurcated between technology leadership and weakness in banks, transports, utilities and smaller companies, the question is whether corporate results confirm the resilient index-level picture — or the considerably less comfortable message coming from beneath the surface.

For this week the earnings signal is therefore less about headline EPS beats and more about pricing power, margins, labor costs and the consumer’s willingness to keep paying higher prices.

⚠️RISK RADAR

What Could Break the Melt-Up?

• Credit spreads reacting to duration stress
• U.S. 30-year yields extending over 5.50%
• Disorderly JGB repricing forcing BOJ intervention
• Gilts Reigniting the 2022 crisis
• Oil spike reigniting inflation expectations
• Failed Treasury auctions / weak foreign demand
• Carry trade unwind in AUDJPY or EM FX
• Commodity divergence widening — crude vulnerable to headlines, metals acting as hedges, energy equities trying to hold.

Any of these could force markets to reprice quickly

🧠 FINAL THOUGHT

Oil/products → inflation expectations → long-end yields → carry/risk threshold

This remains a liquidity-led market. The AI tape has been hit hard but we are seeing rotation from profit taking to other sectors. Financial conditions are loose, but investors are reassessing risk on issuance and AI infrastructure. The second quarter showed how far a market can run when short covering and FOMO overwhelm macro concerns.

But the risk is becoming more specific. It is no longer just “rates are high” or “valuations are stretched.” The real risk is that the AI capex cycle has become self-reinforcing at the same time financing conditions have become easy again.

That can keep the party going. It can also make the eventual adjustment more violent.

For now, the market is still climbing. But semiconductors gave the first serious reminder this fortnight that even the strongest narratives can wobble when investors start asking about payback, capacity, and supply response.

The Cautious Investor view remains the same: respect the momentum, respect the liquidity, but do not confuse a blow-off quarter with a low-risk entry point.

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